PA 22 – PUBLIC ACCOUNTING & BUDGETING

SECOND SEMESTER, SY 2023 – 2024

HAND-OUTS

Name of Student : _______________________________________

Course & Year : ________________________________________
Contact Number : ________________________________________

RHOSLYN B. LAGUERTA, LPT, MM

Instructor
Course Description:

In this course, students learn about accounting and budgeting used by government entities. It
will give insights about the laws, regulations, principles, and concepts that govern the practice
of public or government accounting and budgeting. Students will understand the role of various
government agencies and regulatory bodies that has authority in the standards and regulations
to be used in public or government accounting and budgeting.

Course Aims:

Define accounting and budgeting.

Describe the accounting and budgeting process in government.
Identify the objectives of accounting and budgeting reports in government.
Apply governmental accounting and budgeting procedures in all
government transactions.
Identify the objectives of accounting and budgeting reports in government.
Apply governmental accounting and budgeting procedures in all
government transactions.
Apply accounting and budgeting principles for various government entities.

Government Accounting Defined (Section 109 of PD 1445)

Government Accounting encompasses the processes of analyzing, recording,
classifying, summarizing and communicating all transactions involving the
receipt and disposition of government funds and property and interpreting the
results thereof. Government accounting is a service activity.
Three (3) types of governmental organizational units:
• National Government Unit (LGU) – are agencies that includes all
departments, bureaus, offices, boards, commissions, councils state
colleges and universities.
• Local Government Unit (NGAs)- political subdivisions of the
Philippines having substantial control over local affairs, consisting of
provinces, cities, municipalities and barangays.
• Government Owned or Controlled Corp(GOCC)- are agencies
organized by law or pursuant to law, vested with functions relating to
public needs whether government or propriety in nature, owned by the
government directly or through its instrumentalities either wholly or,

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 where applicable as in case of stock corporation, to the extent of at least
fifty one % of its capital stock.

FUNCTIONS OF GOVERNMENT ACCOUNTING

To provide quantitative information primarily financial in nature about the
operations of the government, both national and local, to be used by the
administration in making decisions for a more effective and efficient public
service.
OBJECTIVES
1.To provide quantitative information concerning past operations and
present conditions.
2.To provide a basis for guidance for future operations.
3.To provide for control of the account of public entities and officers in
the receipt, disposition and utilization funds and properties, and
4.To report on the financial position and the result of the operations of
the government agencies for the information of all persons concerned.
Users of Government Accounting Information:
1. The General public or citizenry
2. The Governing and oversight bodies: The President, Cabinet, COA,
Legislative Body.
3. The managers/administrators who are in-charge of carrying out the
policy and daily conduct of government affairs.
4. The students of public finance
5. The resource providers of the government such as:
• Donors or grantors
• Lenders, suppliers, and employees whose main concern is to know
whether the government can pay its obligations to them.

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DISTINCTIONS BETWEEN GOVERNMENT AND COMMERCIAL
ENTERPRISES
1. Ownership - Private enterprises are owned by a relatively few stockholders,
partners, or owners. The government represent the entire people in a given
community.
2. Purpose - Private enterprises are organized primarily to make profits. The
government is set up mainly to render service at lowest possible cost to its
constituents.
3. Organization - The organization of a private enterprise is a succession of
authority and responsibility starting from its stockholders who delegate them to
a duly elected board of directors which in turn organize its own staff of officers
in whom the responsibility of managing the affair of business is reposed. The
responsibility and authority of a government entity in our system lies in
Congress.
4. Financing - Private enterprise is supported for its finance primarily by the
voluntary contribution from its members or stockholders which constitute as
their share of capital or investment in the business. The government is vested
the exclusive right to demand involuntary contributions from its constituent in
the form of taxes.
5. Income - In private enterprise, the capital investment of stockholders are
made to generate return in the form of profits for services rendered or good sold.
The government, which is organized primarily to render service, cannot make
profits on the services it renders. To support the estimated annual cost of
government, taxes are levied.

DISTINCTION BETWEEN GOVERNMENT AND COMMERCIAL ACCOUNTING

1. Objective –
CA – is geared towards income measurements aside from control of
company resources,
GA - is control of government funds to see to it that they are properly
utilized and provide data to management for decision.
2. Basis of Accounting -
CA – either cash or accrual method is used but not a combination of
both.
GA - the modified accruals basis of accounting is used.

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3. Preparation of periodic reports –
CA – Statement of Financial position, Statement of Cash Flows
GA - Balance sheet, statement of income and expenses, statement of
government equity and statement of cash flows.
4. Control Mechanism –
CA – none
GA – Fund accounting, obligation accounting and CDC accounting
5. Books of Accounts –
CA - only one set is kept
GA - two books are kept (a) Regular Agency (RA) Book and (b) National
Government(NG) Books.
6. As to accounts and transactions –
CA - Nominal and Real Accounts are used.
GA - includes budgetary accounts such as Appropriation, Allotments
and Obligations are maintained.
7. Source of Accounting practice and procedures –
CA - dictated by nature of business and policies of management
GA - laws, rules and regulations
Decision-making Process in Government
The decision-making process in government is an important aspect of the
environment of state accounting because accounting information is intended to
be useful in making economic decisions and in making reasoned choices among
alternative courses of action.
The ultimate authority for decision-making in the Philippine government rests
with the people. This authority is exercised through duly elected representatives,
acting as agents of the people. It is the sovereign right of the people to change
them if the authority is misused or abused.
The President, as chief executive, formulates national policies, which specify the
goals of government and determine the courses of action that the government
should take in different aspects of public affairs.
On the basis of national policy, the President submits a budget to the legislative
body for consideration and processed until approved and passed into a law.

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At all levels of government, decision-making should comply with existing laws
and regulations. Questions and issues involving the settlement of money claims,
determination of dispute or settlement of a controversy on the issue as to legality
and/or propriety of such claims are submitted for resolution to the COA in
connection with the discharge of its audit function. Questions involving legal
interpretation and/or application of law are submitted for decision to the courts.
Salient Features of Government Accounting
The financial resources of the Government are very limited. It relies heavily on
collected taxes. This means that it has to operate through a system of fiscal and
accounting controls. The following control mechanisms adopted as sub-systems
of government accounting are not adopted in commercial accounting:
• Fund Accounting
• Obligation Accounting
• Cash Disbursement Ceiling (CDC) Accounting
Fund Accounting.
A fund is a sum of money or other resources set aside for the purpose of carrying
out specific activities or attaining certain objectives in accordance with specific
regulations, restriction, and limitations.
The two major classification of funds as to purpose for which they may be
used:
1. General Fund – one which is generally available for all functions of the
government.
2. Special Fund - one which, by legislative action, segregates specified revenues
for limited purposes.
Obligation Accounting. As a control mechanism of government accounting
system, obligation accounting provides the ceiling of the maximum extent by
which an agency can incur obligations or commit the resources of the
government in the performance of its functions. With obligation accounting, an
agency can operates only within the amount actually released to it by the DBM,
which is within or covered by the amount approved appropriation.
Obligation accounting refers to the accounting practice, procedures and
techniques for recording obligations in the government.
Cash Disbursement Ceiling Accounting. The cash disbursement ceiling
accounting is another control mechanism of government accounting system. The
cash operations of the government under the cash disbursement ceiling

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accounting are limited within the boundaries of the appropriations release to
government agencies in the form of allotments, and any additional amount
granted by the DBM to liquidate or pay existing valid obligation.
Accounting Responsibility - Under PD 1445, accounting responsibility for all
government funds and property is entrusted, immediately and primarily, to the
head of the government agency or office. It is the duty of the head of the agency
to take reasonable steps to minimize, if not to avoid the risk of losses,
defalcations and other types of irregularities in the utilization of all government
resources (to safeguard the resources of the government under his custody) and
periodic reporting to concern authorities. His responsibility, however, is
supervised by higher authorities and government bodies.
The officer in possession or custody of government funds or property by reason of
his duties are accountable for the safekeeping thereof. As such, he shall be
properly bonded.
The Head of the agency is made immediately and primarily responsible for all
government funds and property pertaining to his agency. Secondary
responsibility is made to rest on the persons entrusted with the actual
possession or custody of the funds or property. They are the accountable officers
and are immediately responsible to the agency head.
The imposition of primary responsibility on the agency head for government
funds and property is in keeping with the concept of fiscal responsibility which
now lodge with agency head.
The head of the agency shall exercise the diligence of a good father or a family in
supervising accountable officers to prevent the incurrence of loss of government
funds and property, otherwise, he shall be jointly and solidarity liable with the
person primarily accountable thereof.
Although supervisory work of government accounting is vested upon to the
Commission on Audit, accounting responsibilities in the government, by virtue
of the provision of the Constitution of the Philippines, laws, Presidential Decrees
and other issuances, are shared primarily by the Commission on Audit(COA),
Department of Budget and Management, (DBM), Department of Finance (Bureau
of Treasury) and government agencies.
The Commission on Audit serves as the external auditor of the government
agencies. It is a constitutional office and its mandates are provided in Section 2,
Art. IX-D of the 1987 Constitution of the Philippines. The COA examine, audit
and settle all accounts pertaining to revenues or receipts and expenditures or
uses of government funds and property, keeps the general accounts of the
national government , prescribes the standard chart of accounts, promulgates
accounting rules and regulations and exercise technical supervision over the
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accounting functions of each agency. The office is mandated by the Constitution
to submit to the President and the legislative body within the time frame fixed
by law, an annual audit report of the government, its subdivision, agencies and
instrumentalities including government owned or controlled corporations and
recommend measures necessary to improve efficiency and effectiveness.
The DBM is responsible for the design, preparation, and approval of the
accounting systems of government agencies, determines the accounting and
other item of information needed to monitor budget performance and assess
effectiveness of the agency operation. It prescribes the forms, schedules of
submission and other component of reporting system needed to accomplish and
submit the required information. It acts on agencies’ recommendations for the
modification or changes to prescribed systems for procedures to effect simplicity
and/or meet the requirements of the peculiarities of the agencies concerned. It
approves the Agency Budget Matrix and issues the allotments to agencies in
accordance with the approved budget and issues Notice of Cash Allocation.
The Bureau of Treasury (BTr) performs banking function for the national
government. It receives and keeps government funds, controls the
disbursements thereof and maintain accounts of the financial transactions of
national government agencies. It is required to prepare and submit to the COA
and other fiscal activities, a daily statements of cash receipts, disbursements
and fund balances in the National Treasury.
The National Government Agencies (NGAs) consist of various organizational
units such as departments, bureaus, commissions, boards, offices, tribunals,
councils, institutions, state colleges or universities and establishments.
These agencies are required to establish and maintain a system of accounting
for their financial resources and operation in accordance with pertinent rules
and regulations. Accounts should be kept in such details as is necessary to meet
the need of agency management and furnish information to fiscal and control
agencies such as COA, DBM and BTr.
Relationship between Accountability, Responsibility and Authority
Accountability is the obligation of a public officer/employee to answer for the
responsibility conferred on him/her. It is her Responsibility to respond to the
concerns of individuals or groups, the public he/she is to serve, within the
overall context of his/her obligations for which he/she has the appropriate
Authority.
In government, authority is often used interchangeably with the term "power".
However, their meanings differ: while "power" is defined as 'the ability to

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influence somebody to do something that (s)he could not have done', "authority"
refers to a claim of legitimacy, the justification and right to exercise that power.
Accountability Requirements from Public Officer/Employees
Section 1 of PD 1445 provides: ”It is the declared policy of the State that all
government resources shall be managed, expended and utilized in accordance
with law and regulations and safeguard against loss or wastage through illegal
or improper disposition, with a view to ensuring efficiency, economy and
effectiveness in the operations of government. The responsibility to see to it that
such policy is faithfully adhered to rests directly with the chief or head of the
government agency concerned.”
This declaration articulates the concern of the state for the safekeeping of the
public’s resources. It focuses on how the resources shall be handled by those
given the public trust to manage, spend or use such resources.
Pursuant to this policy the State requires from public officers and
employees the following:
1. Compliance with laws and regulations
- Laws and rules
- Agency policies
- Agency manuals of operations; and
- Provisions of contracts, MOA
2. Safeguarding of government resources from loss and waste
3. Achieving goals and objectives
Assertions of Compliance with Accountability Requirements
When public officers and employees submit to the Commission their
transactions, accounts, financial reports and statements and other performance
and operation reports, they are asserting or claiming that they have complied
with the foregoing accountability requirements.
What is Assertions?
Assertion is the expressed or implied representation by management that is
reflected in their transactions, accounts, financial statements, records, reports
and that they are claiming that they have complied with the accountability
requirements of the state policy.

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Assertions on Compliance with Laws and Rules
When expenditures, disbursements, receipts and collections are reported to the
appropriate authorities, management is making claim that so much amount has
been disbursed or so much amount have been collected in payment of goods and
services received or rendered in accordance with laws, rules, applicable policies
and practices.
Assertion on Resources Duly Safeguarded
When the agencies issue their financial reports and statements they are
asserting the following:
1. Existence or Occurrence - This deals with whether assets or liabilities of the
audited agency actually exist at a given date, and whether recorded transactions
have occurred during the given period.
2. Completeness – This deals with whether all transactions and accounts that
should be presented in the financial statements are included.
3. Rights and Obligations - This deals with whether assets are actually owned
by the agency and liabilities are the obligation of the agency at a given date.
4. Valuation or Allocation - This deals with whether or not the asset, liability,
revenue and expenses components have been included in the financial
statements at appropriate amounts.
5. Presentation and Disclosure – This deal on whether particular components
of the financial statements are properly classified, described and disclosed.
Assertions on Achievement of Goals and Objectives (Performance or Value for
Money Accountability)
When the agencies prepare and submit to proper authorities their reports on the
performance of an activity or a project, the agency is asserting that they used
and managed the resources for that activity or project in an economical, efficient
and effective manner.
Performance of government entities is measured from the point of view of
economy, efficiency and effectiveness.
Economy refers to the reasonableness of cost incurred. Measuring economy will
determine whether the agency has been performing at the least possible cost or
under the terms most advantageous to the government.
Efficiency refers to the relationship between goods or services produced and
resources used to produce them. The measurement of efficiency involves the
determination of whether an agency is managing or utilizing its resources in an

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efficient manner as well as establishing the causes of any inefficiencies,
including inadequacy in management information systems, administrative
procedures or organizational structure.
Effectiveness is concerned with the relationship between the outputs and the
goals of the agency. Measuring effectiveness will determine whether the desired
results are achieved, whether the objectives set by the agency are met, and
whether the agency has considered alternatives that yield desired results at a
lower cost.
Generally Accepted (State) Accounting Principles
Accounting principles are propositions, a general law or rule adopted, which on
the basis of reasons, demonstrated usefulness and general acceptance as the
best way of carrying out the function and achieving the objectives of financial
accounting.
Objectives:
1. Guide the accountants in identifying, measuring and communicating financial
accounting information;
2. Assure proper reporting and reasonable degree of uniformity and
comparability among the financial statements of different government entities;
and
3. Provide auditors with the framework for making judgment about the fairness
of financial statements on the basis of some uniform standards.
Significant differences in principles between state accounting and
commercial accounting:
1. Government activities are non-profit oriented;
2. State accounting places greater emphasis on accountability, stewardship and
control; and
3. State accounting is based on laws, rules and regulations. A principle is
generally accepted if it has substantial authoritative support. There are two
sources of support:
primary and secondary sources
Primary sources:
1. Pronouncement of the Commission on Audit - COA is mandated by the
Philippine Constitution to promulgate accounting rules and regulations to
facilitate the keeping and enhance the informational value of the accounts of the
government.

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2. Provision of law - Sec. 112 of the PD 1445 provides that generally accepted
accounting principles should be observed in government accounting entities a
provided they do not contravene existing laws and regulations.
Secondary source:
From the pronouncements and issuances by other government agencies.
The Government Auditing Code of the Philippines requires that each government
agency shall record its financial transactions and operations in conformance
with the generally accepted accounting principles and accordance with pertinent
laws and regulations. The principles to be followed by government entities
includes the following:
1. The accounts of the agency shall be kept in such detail and at the same time
be adequate to furnish the information needed by fiscal or control agencies of
the government.
2. The highest standard of honesty, objectivity and consistency shall be observed
in the keeping of accounts to safeguard against inaccurate or misleading
information.
3. The government accounting system shall be on double-entry basis with the
general ledger in which all financial transactions are recorded, Subsidiary record
shall be kept where necessary.
4. The Chart of Accounts has three-digit coding system and provides for
responsibility accounting.
5. The Chart of Accounts categorizes Personal Services, Maintenance and Other
Operating Expenses and Financial Expenses as Expenses, obligation charged to
capital outlay are recorded to appropriate asset accounts when the liability and
the payment are taken-up.
6. Matching Principles, The principle that requires the matching of revenues and
expenses is adopted. - Modified accrual method is used
- Depreciation accounting for property, plant and equipment using the
straight line method is followed.
- Allowance for doubtful accounts is taken up. Dormant accounts are
transferred o a separate registry,
- Asset method is followed for prepaid expenses.

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7. On financial statement:
1. Fairness of presentation – this refer to the overall propriety of
disclosing financial information. Full disclosures in financial aspects
requires observance of the standards of reporting.
2. Compliance – the report shall be in accordance with prescribed
government requirements and international accounting standard of
reporting.
3. Timeliness – all needed reports shall produced promptly to be of
maximum usefulness.
4. Usefulness – financial reports shall be carefully designed to present
information that is needed and useful to reports users.
8. Obligation accounting is modified; allotments and obligations are no longer
journalized. Separate registries are maintained to control these accounts and the
appropriation.
9. All lawful expenditures and obligation incurred during the year shall be taken
up as accounts of that year.

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 MANUAL ON THE NEW GOVERNMENT ACCOUNTING SYSTEM
For National Government Agencies
ACCOUNTING POLICIES

Sec. 1. OBJECTIVES OF THE MANUAL. The New Government Accounting

System (NGAS) Manual presents the basic policies and procedures; the new
coding system; the accounting systems, books, registries, records, forms,
reports, and financial statements; and illustrative accounting entries to be
adopted by all national government agencies effective January 1, 2002. The
objectives of the Manual are to prescribe the following:
a. Uniform guidelines and procedures in accounting for government funds
and property;
b. New coding structure and chart of accounts;
c. Accounting books, registries, records, forms, reports and financial
statements; and
d. Accounting entries.
Sec. 2. COVERAGE. This Manual shall be used by all national government
agencies.
Sec. 3. LEGAL BASIS. This Manual is prescribed by the Commission on Audit
pursuant to Article IX-D, Section 2 par. (2) of the 1987 Constitution of the
Republic of the Philippines which provides that:
"The Commission on Audit shall have exclusive authority, subject to the
limitations in this Article, to define the scope of its audit and examination,
establish the techniques and methods required therefore, and promulgate
accounting and auditing rules and regulations, including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant,
or unconscionable expenditures, or uses of government funds and properties".
BASIC FEATURES AND POLICIES
Sec. 4. BASIC FEATURES AND POLICIES. The NGAS has the following basic
features and policies, to wit:
a. Accrual Accounting. A modified accrual basis of accounting shall
be used. Under this method, all expenses shall be recognized when
incurred and reported in the financial statements in the period to
which they relate. Income shall be on accrual basis except for

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 transactions where accrual basis is impractical or when other methods
required by law.
b. One Fund Concept. This system adopts the one fund concept.
Separate fund accounting shall be done only when specifically required
by law or by a donor agency or when otherwise necessitated by
circumstances subject to prior approval of the Commission.
c. Chart of Accounts and Accounts Codes. A new chart of accounts
and coding structure with a threedigit account numbering system shall
be adopted. (See Volume III, The Chart of Accounts)
d. Books of Accounts. All national agencies shall maintain two sets of
books, namely:
Regular Agency (RA) Books.
These shall be used to record the receipt and utilized of Notice of Cash Allocation
(NCA) and other income/receipts which the agencies are authorized to use and
to deposit with Authorized Government Depository Bank (AGDB) and the
National Treasury.
These shall consist of journals and ledgers, as follows:
Journals
* Cash Receipts Journal (CRJ)
* Cash Disbursement Journal (CDJ)
* Check Disbursement Journal (CkDJ)
* General Journal (GJ)
Ledgers
* General Ledgers (GL)
* Subsidiary Ledgers (SL) for:
* Cash
* Receivables
* Inventories
* Investments
* Property, Plant and Equipment
* Construction in Progress

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 * Liabilities
* Income
* Expenses
National Government (NG) Books.
These shall be used to record income which the agencies are not authorized to
use and are required to be remitted to the National Treasury.
These shall consist of:
* Cash Journal (CJ)
* General Journal (GJ)
* General Ledger (GL)
* Subsidiary Ledger (SL)
With the implementation of the computerized agency accounting system, only
the General Journal shall be used together with the ledgers by both books.
e. Financial Statements. The following statements shall be prepared:
* Balance Sheet
* Statement of Government Equity
* Statement of Income and Expenses
* Statement of Cash Flows
Notes to Financial Statements shall accompany the above statements.
f. Two-Money Column Trial Balance. The two - money column trial balance
showing the account balances shall be used.
g. Allotment and Obligation. Obligation accounting is modified to simplify
procedures in the incurrence and liquidation of obligations and the recording of
the budgetary accounts (allotments and obligations incurred and liquidated).
Separate registries shall be maintained to control the allotments and obligations
for each of the four classes of allotments, namely:
* Registry of Allotments and Obligation - Capital Outlay (RAOCO)
* Registry of Allotments and Obligations - Maintenance and
Other Operating Expenses (RAOMO)
* Registry of Allotments and Obligations - Personal Services (RAOPS)

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 * Registry of Allotments and Obligations - Financial Expenses (RAOFE)
h. Notice of Cash Allocation (NCA). The receipts of NCA by the agency shall be
recorded in the books as debit to account "Cash-National Treasury, Modified
Disbursement System (MDS)" and credit to account "Subsidy Income from
National Government". (Refer to the latest issuance by DBM as regards to
releases of NCA)
i. Financial Expenses. Financial expenses such as bank charges, interest
expenses, commitment charges and other related expenses shall be separately
classified from Maintenance and Other
Operating Expenses (MOOE).
j. Perpetual Inventory of Supplies and Materials. Supplies and materials
purchased for inventory purpose shall be recorded using the perpetual inventory
system. Regular purchases shall be coursed thru the inventory account and
issuances thereof shall be recorded as the take place except those purchased out
of Petty Cash Fund which shall be charged directly to the appropriate expense
accounts.
k. Valuation of Inventory. Cost of ending inventory of supplies and materials
shall be computed the moving average method.
l. Maintenance of Supplies and Property, Plant and Equipment Ledger Cards.
For appropriate check and balance, the Accounting Units of agencies, as well as
the Property Offices, shall maintain Supplies Ledger Cards/Stock Cards by stock
number and Property, Plant and Equipment Ledger Cards/Property Cards by
category of property, plant and equipment, respectively.
m. Construction of Assets. For assets under construction, the Construction
Period Theory shall be applied for costing purposes. Bonus paid to the contractor
for completing the work ahead of time shall be added to the total cost of the
project. Liquidated damages charged and paid for by the contractor shall be
deducted from the total cost of the project. Any related expenses incurred during
the construction of the project, such as taxes, interest, license fees, permit fees,
clearance fee, etc. shall be capitalized, and those incurred after the construction
shall form part of operating costs.
n. Registry of Public Infrastructures/Registry of Reforestation Projects. For
agencies that construct public infrastructures, such as roads, bridges,
waterways, railways, plaza, monuments, etc., and invest on reforestation
projects, a Registry of Public Infrastructures (RPI). Registry of Reforestation
Projects (RRP) shall be maintained for each specific infrastructures/reforestation
project.

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A Registry of Public Infrastructures - Summary shall be maintained for each
classification of projects.
Examples are:
* Registry of Public Infrastructures - Bridges (RPIB)
* Registry of Public Infrastructures - Roads (RPIR)
* Registry of Public Infrastructures - Parks (RPIP)
A Schedule of Public Infrastructures/Reforestation Projects shall be prepared at
year-end and included in the Notes to Financial Statements.
o. Depreciation. The straight-line method of depreciation shall be used.
Depreciation shall start on the second month after purchase of the property,
plant and equipment, and a residual value equivalent to ten percent of the
purchase cost shall be set-up. Public infrastructures/reforestation projects as
well as serviceable assets that are no longer being used shall not be charged any
depreciation.
p. Reclassification of Assets. Serviceable assets no longer being used shall be
reclassified to "Other Assets" account and shall not be subject to depreciation.
q. Allowance for Doubtful Accounts. An Allowance for Doubtful Accounts shall
be set up for estimated uncollectible trade receivables to allow for their fair
valuation.
r. Elimination of Contingent Accounts. Contingent accounts shall no longer
be used. All financial transactions shall be recorded using the appropriate
accounts. Cash shortages and disallowed payments, which become final and
executory, shall be recorded under receivable accounts "Due From Officer and
Employees" or "Receivables-Disallowances/Charges", as the case may be.
s. Recognition of Liability. Liability shall be recognized at the time goods and
services are accepted or rendered and supplier/creditor bills are received.
t. Interest Accrual. Whenever practical and appropriate, interest income and/or
expense shall be accrued and recognized in the books of accounts.
u. Accounting for Borrowings and Loans. All borrowings and loans incurred
shall be recorded to the appropriate liability accounts.
v. Elimination of corollary and negative journal entries. The use of corollary
and negative journal entries shall be stopped. Acquisition/Disposition of assets
shall be debited/credited to the appropriate assets accounts. If an error is
committed, correcting entry to adjust the original entry shall be prepared.

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w. Petty Cash Fund. The Petty Cash Fund shall be maintained under the
imprest system. As such, all replenishment shall be directly charged to the
expense account and at all times, the Petty Cash Fund shall be equal to the total
cash on hand and unreplenished expenses. The Petty Cash Funds shall not be
used to purchase regular inventory/items for stock.
x. Foreign Currency Adjustment. Cash deposits in foreign currency and
outstanding foreign loans shall be computed at the exchange rate prescribed by
the Bangko Sentral ng Pilipinas at balance sheet date. The total cash deposits
and foreign loans payable shall be adjusted at the end of each month and any
gain or loss on foreign exchange shall be recognized. The subsidiary ledger for
foreign currency obligations shall reflect appropriate foreign currency in which
the loan is payable. The liability shall be expressed both in the foreign and local
currency.

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 ACCOUNTING SYSTEM
Sec. 5 General Accounting Plan. The General Accounting Plan (GAP) shows the
overall accounting system of a government agency/unit. It includes the source
documents, the flow of transactions and its accumulation in the books of
accounts and finally their conversion into financial information/data presented
in the financial reports.
The following accounting systems are:
a. Budgetary Accounts System;
b. Receipts/Income and Deposits System;
c. Disbursement System; and
d. Financial Reporting System
Budgetary Accounts System - The Budgetary Accounts System encompasses the
processes of preparing the
Agency Budget Matrix (ABM), monitoring and recording of allotments received
by the agency from the DBM, releasing of Sub-Allotment Release Order (SARO-
to Regional Offices (RO) by Central Office (CO), issuance of SubSARO to operating
units (OUs) by the RO and recording and monitoring obligations.
Budgetary Accounts - Consist of the appropriations, allotments, and
obligations. Appropriations refer to the authorization made by law or other
legislative enactment for payments to be made with funds of the government
under specified conditions and/or for specified purposes. Appropriations shall
be monitored and controlled through registries and control worksheets by the
DBM and COA, respectively.
Agency Budget Matrix (ABM) - The ABM refers to a document showing the
disaggregation of agency expenditures into components like, among others, by
source of appropriation, by allotment class and by need of clearance.
THE NATIONAL BUDGET
Government budget defined
A government budget is a plan for financing the government activities of a
fiscal year prepared and submitted by responsible executive to a representative
body whose approval and authorization are necessary before the plan can be
executed. It is more than mere estimate or statement of receipts and
expenditures; it is a definite proposal to be approved or rejected. Basically,
budgeting is planning and controlling. Careful plans for the future should be laid

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and those who direct the operation of the government must be held strictly
responsible for carrying out the plan.
Purposes of budgeting:
1. Establish in advance the objective or end result of the budget period.
2. Provides the means of coordinating the activities of the various sub-
divisions and departments of the business.
3. Provide a period-to-period basis of comparison to show whether the
plan is being realized and if not realized indicate when changes must be
made if current objectives are to be obtained.
4. To serve as basis for orderly management of public finances.
Fundamental Principles of Fiscal Operations
Budget activities are governed by legal provisions/fundamental principles
relating to the financial transactions and operations of the government. The
principles, as provided for by law are:
1. No money shall be paid out of any public treasury or depository except
in pursuance of an appropriation law or other specific statutory
authority;
2. Government funds or property shall be spent or used solely for public
purposes;
3. Trust funds shall be available and may be spent only for the specific
purpose of which the trust was created;
4. Fiscal responsibility shall, to the greatest extent, be shared by all those
exercising authority over the financial affairs, transactions, and
operations of the government agency;
5. Disbursements or disposition of government funds and property shall
invariably bear the approval of the proper officials;
6. Claims against government funds shall be supported with complete
documentation;
7. All laws and regulations applicable to financial transactions shall be
faithfully adhered to; and
8. Generally accepted principles and practices of accounting as well as of
sound management and fiscal administration shall be observed, provided
they do not contravene existing laws and regulations.
The Budget as the Framework of the Accounts

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The budget is an estimate of the proposed expenditures for specified purposes
and period, and embodies the means of financing them during the same period.
It provides the means for controlling the estimated amounts to be raised as well
as the proposed amounts to be spent for specified objects. It is a program that
guides all activities relating to collections and expenditures; It is the framework
of the accounts by which the transactions affecting such collections and
expenditures shall be recorded; thus, the proper classification of income and
expenditures should be reflected in the accounts so that recorded data may give
adequate support to future budget estimates.
Linkage Between Government Budgeting and State Accounting
A close linkage exists between government budgeting and state accounting. The
accounting system provides the essential information needed to make resource
allocation decisions, monitor budgetary performance, and assess the
effectiveness of operations. The budget provides the framework within which
transactions should be recorded, classified and summarized in the accounting
system to permit comparison of actual results with budgeted standards. A
substantial output of the accounting system pertains to accountability reports
needed to monitor performance in the execution and accountability phases of
the budgetary process. The content, form, and other requirements of such
reports are prescribed by the DBM. The Commission on Audit issues rules and
regulations that may be applicable when the reporting requirements affect
accounting functions.
Kinds of Budgets
1. As to Nature
a. Annual Budget – a budget which covers a period of one year. It is the basis of
an annual appropriation.
b. Supplemental budget – a budget which purports to supplement or adjust a
previous budget which is deemed inadequate for the purpose for which it is
intended. This is the basis for a supplemental appropriation.
c. Special budget – a budget of special nature and generally submitted in special
forms on account of the fact that itemizations are not adequately provided in the
Appropriation Act or that amounts are not at all included in the Appropriations
Act.
2. As to Basis
a. Performance Budget – a budget emphasizing the programs or services
conducted and based on functions, activities and projects which focus attention
upon the general character and nature of the work to be done, or upon the

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services to be rendered, rather than the things to be acquired, such as personal
services, supplies and equipment. It is management-oriented measures actual
or estimated results in the basis, terms of benefits accruing to the public and
their costs.
b. Line-Item Budget – a budget the basis of which are the objects of
expenditures such as salaries and wages, travelling expenses, freight, supplies,
materials and equipments, tec.
3. As to Approach and Technique
a. Zero-Based Budgeting – a process which requires systematic consideration
of all programs, projects and activities with the use of the defined ranking
procedures. In ZBB, activities are analyzed and presented in “decision packages”
or key budgetary inclusions.
The term “zero-base” refers to the yearly analysis, evaluation and justification of
each activity, project or program, starting from a “zero” performance and
budgeting level. ZBB does not accept the prior year’s budget as a starting point
for analysis. The analysis of the levels of funding and performance as well as the
expected impact of the objectives at each level will give enough leeway for
management to decide whether to eliminate entirely a low priority to make way
for a new one or to cut back the performance and funding level of the program
to permit another to expand.
b. Incremental Approach – a budget where only additional requirements need
justification. It focuses on analysis of incremental changes in the budget and
may be done within the context of performance and program budgeting.
c. Capital Budgeting Approach - a budgeting technique which consists of a two-
tiered strategy, as follows:
c.1 Setting a baseline budget that will correspond to the minimum level
of operating requirements at which each agency of the national
government will be able to perform its basic functions; and
c.2 Prioritization of the allocable balance (i.e. what is left of the budget
ceiling after deducting the baseline budget) among the proposed
projects and programs of agencies.
Agency baseline – refers to the cost of performing regular agency functions,
including an allowance for inflation, but excluding the cost of non-recurring
programs and projects.
Government-wide baseline – refers to the budget impact of decisions or policies
enunciated by the government that require priority funding. These items are

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not traditionally reflected in the individual budgets of agencies but are shown as
a lump sum to be distributed later on the basis of prescribed rules or procedures.
Examples are:
a. Proposed salary adjustment
b. Miscellaneous personnel benefits, including retirement benefits
c. Mandatory allocations to local governments
d. Projected level of support to GOCCs
e. Estimated provisions for contingencies due to calamity, foreign
exchange fluctuations and other adjustments.
FAPs baseline – refers to the budgetary requirements, of ongoing
programs/projects with foreign financial assistance.
Priority Program/Project Fund - the remaining balance after deducting the
baseline budget requirements of the national government.
National Budget System
The National Budget System consists of the methods and practices of the
government for planning, programming, and budgeting. It shall include the
adoption of sound economic and fiscal policies and the execution of the programs
and projects geared towards the accomplishment of political, economic, and
social objectives. Its primary concern is the availability and use of money to
provide the services required or expected from the government.
Legal Basis of the Budget System
The legal basis of the current national budget system is the Budget Reform
Decree or PD No. 1177. The first premise of the Budget Reform Decree is that
the national budget is an instrument for development and as such requires
careful design and implementation of budget preparation, legislation, execution
and accountability.
What is a national budget?
A national budget is the government’s estimate of its income and expenditures.
It is the financial translation of the program and projects that best promote the
development of the country. It is what the government plans
1) to spend for its programs and projects and
2) where the money will come from. It is based on what the government
thinks it will spend during the year and the sources of what it hopes to

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 have as funds either from the revenues or from borrowings with which to
finance such expenditure.
On what is our national budget spent?
Our national budget is allocated for the implementation of various programs and
projects, the operation of government offices, payment of salaries of government
employees and payment of public debts. These expenditures may be looked at in
terms of expense class, sector, implementing unit of government and region.
Expenditures by expense class show how much is provided for:
1. Current operating expenditures – appropriations for the purchase of goods
and services for the conduct of normal government operations within a budget
year (e.g. salaries, maintenance and other operating expenses, interest payments
etc.)
2. Capital outlays – appropriations for the purchase of goods and services the
benefits of which extent beyond the budget year and which add to the assets of
government including investments in the capital stock of government owned-or
controlled corporations.
3. Net Lending – net advances by the national government for the servicing of
government guaranteed corporate debt and loans outlays by the national
government to government corporations; and
4. Debt amortization – contribution to the sinking fund which is utilized for
principal repayment of our loans.
Why does the government borrow from foreign sources? Why can’t it make
do with what is collected locally.
Our government has to provide for the requirements of capital outlays projects
such as roads and bridges, that are important to the attainment of our
development objectives. In effect, capital outlays are investments for continuous
economic activities and for future expansions. They generate local production
and income. Relying only on domestic or local resources to finance such projects
will limit our government’s capacity to provide this needed support. If the
government takes too large a share of domestic resources, local private demand
will have less for their own projects and activities. As a result, credit will be tight,
interest charges will be high and prices of goods and services will go up.
The absence of a long-term domestic capital market and the limited savings in
the country, moreover, render the domestic resources insufficient to finance the
enormous requirements of development. By borrowing from foreign sources, the
government takes advantage of long-term loans which are readily available
abroad with lower interest rates in international capital markets.

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It should be emphasized that our national government uses borrowing proceeds
solely to finance carefully selected capital projects supportive of the country’s
development goals. Wisely chosen and efficiently implemented, these projects are
expected to build up the productive capacity of our economy and eventually pay
back the loans obtained.
BUDGET PROCESS
How is the government budgeting undertaken?
Government budgeting is undertaken using a process that consists of four (4)
phases, namely:
1) budget preparation
2) budget legislation or authorization
3) budget execution or implementation
4) budget accountability or review
Budget Preparation
This process starts with the determination of budgetary priorities and activities
guided by our national development plan, within the ceilings or constraints
imposed by available revenues and borrowing limits and inclusion of amounts
needed for approved priorities and activities into the expenditure levels.
The Development Budget Coordinating Committee (DBCC) determines the overall
expenditure levels, the revenue projections, the deficit levels and the financing
plan. The DBCC submits these to the Cabinet and to the President for approval.
The DBCC is composed of the Budget Secretary as Chairman and the Economic
Planning Secretary, the Bangko Sentral ng Pilipinas and the Finance Secretary
as members. It is assisted by an Executive Technical Board. Once approved, the
DBM issued a Budget Call, a document reminding the different agencies in the
government to prepare their respective budgets in accordance with approved
overall budget ceilings and parameters. Upon receipt of the budget call, the
agencies are also expected to have already started conducting their own internal
budget consultations to firm up and to fit in their departmental plans and
priorities for the specific year with the overall sectoral development strategy of
government, as laid down in the Medium Term Development Plan.
DBM hold consultations with agencies to set indicative expenditure ceiling of
department or agencies as set by DBCC to be used in preparation of official
budget estimates to avoid. minimize bloated agency budget proposal Agencies
issue guidelines to their regional offices which are expected to conduct regional
budget hearings with RDC and NGO. In this hearing, programs, plans and

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priorities in the regions are reviewed which will be incorporated in the budget
proposal.
The regional offices submit their RDC – approved budget to their respective head
offices in Manila which, in turn,collate all the regional budget proposals
submitted by their different regional offices all over the Philippines and
consolidate these into a single agency budget proposal of the department.
The DBM conducts consultation-workshops with RDCs and department heads
on their criteria for the allocation of the agency budget to their regional offices.
The intention is to ensure that the regional distribution of the national budget is
consistent with the development plans and directions of the regions.
This is in line with the allied policies of decentralization and creating greater
popular participation in government concerns.
The DBM then undertakes a series of review activities to evaluate the merits of
the budget proposals and determine the areas where possible cuts could be
made. The objective is to make the overall expenditure level consistent with that
determined by the DBCC and approved by the President.
Budget Legislation or Authorization
The President submits the overall budget that he/she approved to Congress in
the form of a detailed Expenditure Program (National Expenditure Program)
accompanied by the Budget of Expenditures and Sources of Financing,The
President’s Budget Message and the Regional Allocation of the Expenditure
Program.
In Congress, the proposed budget goes first to the House of Representatives,
which assigns the task of initial budget review to it Appropriations Committee.
The House Committee summons the different national agencies of the
government to explain and to justify their budget. The proposed budget is then
presented to the House Body as a bill (Gen. Appropriations Bill).
From the House of Representatives, the budget bill goes to the Senate and is
referred to the Senate Finance Committee. The Senate Finance Committee,
likewise, asks the various agencies to explain their respective budgets as
contained in the budget bill. It then proposes amendments to the House Budget
Bill to the Senate Body for approval.
To thresh out differences and arrive at a common version, a conference
committee is created composed of members coming from both houses.
Once a common budget bill has been approved by both houses voting separately,
it is submitted to the President for signing into law. It then known as a General

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Appropriations Act., which mandates the DBM, as the staff arm of the President
to execute or implement the expenditures program.
Budget Execution or Implementation
This is the operational aspect of budgeting. After the President signs the GAA
into law, the DBM requires the different agencies of government to prepare the
Agency Budget Matrix (ABM) to be accompanied by the Annual
Cash Program.
The allotment (based on the ABM) is the authority of the government agency to
incur obligations and enter into contract. It is possible that sometimes the
allotment is issued for the funding of projects even if these will take one year to
finish. This is done to enable the agency to enter into contracts and begin the
projects. However, pursuant to DBM Circular Letter #2008-11, the releases of
Notices of Cash Allocation (NCAs) is being modified.
NCAs to cover regular requirements of agencies shall be comprehensively
released with a monthly breakdown of NCA requirements of the agency receiving
NCA directly from DBM. Basis of releases is the Monthly Cash Program (MCP), a
budget execution document, reflects the monthly disbursement requirement of
OUs.
All NCAs programmed and credited for the month whether part of the
comprehensive release or constituting the additional NCA releases, shall be valid
only until the last working day of the said month, thus, any un utilized NCA
corresponding to the book balance (net of outstanding checks) shall
automatically lapse at the end of that month.
DBM shall provide the MDS-GSB and agency concerned, a monthly schedule of
the NCA releases, ex. Monthly NCA requirement of the agency.
Upon receipt of the NCA, the MDS-GSB shall ensure that the amount
programmed for the month, if there is any, shall be credited immediately to the
Regular MDS accounts of the agency. Thereafter, the NCA requirements for the
subsequent months shall be credited on the first working day of the month
consistent with the schedule to be provided by DBM.
The NCA specifies the maximum amount of withdrawal that an agency can make
from the government servicing bank for the period indicated.
DOF and DBM will meet every month to confirm or adjust the estimated cash
availability and the program of NCA releases. In the event that cash balance of
the government reaches a level where the budget cost cannot be met, DBM
implements the across-the-board budget reduction.

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(Refer to the National Budget Circular #528 for the guidelines of NCA Releases
for FY 2011)
Budget Accountability
This refers to the evaluation of actual performance and initially approved work
targets. Obligation incurred, personnel hired and work accomplished are
compared with the plans and targets submitted by the agencies at the time that
their respective budgets are prepared. This work is entrusted with the DBM and
COA.
Budget accountability is concerned with tracking and monitoring of actual
expenditures, revenue, assets and liabilities of the government and is carried out
largely through the accounting function. It consists of the periodic reporting by
agencies of their performance, top management review of government activities
and the fiscal and policy
implications, and the actions of the COA in assuming the fidelity of officials and
employees in the handling of receipts and expenditures.
Accounting for budgetary accounts
Budgetary accounts consists of the appropriations, allotments and obligations.
Appropriations refers to an authorization made by law or other legislative
enactment, directing the payment of goods and services out of government funds
under specified conditions or for special purposes. Allotment is the authorization
issued by the DBM to the agency, which allows it to incur obligations for specified
amounts, within the legislative appropriation.
In order that the appropriation may be released, the agency, in consultation with
the DBM, is required to prepare and to submit the Agency Budget Matrix (ABM),
the official document used as the basis in the release of the obligational
authority. This is prepared by appropriation/financing sources to support
expenditures to be made during the year broken down by allotment
class/expenses. The ABM shall contain, among others, the following
information:
a. The amount to be released categorized under “Not Needing Clearance”
column, and
b. The amount that will be released through the issuance of Special
Allotment Release Order (SARO) categorized under “Needing Clearance”
column including continuing appropriations based on the Statement of
Allotments, Obligations and Balances (SAOB).
An Annual Cash Program, which shall provide cash to finance the programs
reflected in the ABM and the prior year’s accounts payable, is also submitted

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with the ABM. Upon approval of the total comprehensive release by the DBM, it
will be released to the agency.
For request “Non-Needing Clearance”, the Notice of Cash Allocation (NCA) is
issued as requested.
Pursuant to the Tax Remittance Advice (TRA) system as provided in Joint
Circular No. 1-200 of the DOF, DBM and COA dated January 3, 2000, the NCA
released to the agency is reduced by the amount of the taxes withheld to be
remitted by the DBM for the Agency thru the TRA based on the request of the
agency duly supported by the
Summary of Taxes Withheld (STW).
Control and Recording of Appropriations, Allotments. Obligations and the NCA
The COA does not journalize the appropriations. The control of the release of
allotments and the NCA shall be made by the DBM and the BTr, thru the
registries that they shall maintain. The Agency shall also monitor the allotments
and the obligations it incurs in the registry that it shall also maintain.
The agency shall journalize the NCA it receives as debit to Cash-National
Treasury-MDS and credit to Subsidy Income from the National Government. In
effect it identifies the share of the agency in the income of the National
Government.
Records of the DBM
Upon the approval and issuance of the ABM and the SARO, the DBM shall enter
the pertinent data on releases for each government agency in the Registry of
Appropriations and Allotments (RAPAL). The DBM shall maintain the Registry of
Allotments and NCA (RANCA) for the allotments and the NCA issued to the
agency. The RANCA shall be the control and monitoring record of the DBM and
shall furnish the BTr a copy of the NCA.
Records of the BTr
Upon receipt of the NCA from DBM, the BTr shall enter it in the Registry of NCA
and Replenishment (RENREP). It shall also enter the transfer of cash from its
bank account(s) to the appropriate MDS account.
Records of the Agency
Upon receipt of the approved ABM and ARO, the Budget Officer shall record the
allotment to the respective registries through the Allotment and Obligation Slips
(ALOBS). Although the agency will not journalize its appropriation and
allotments, it shall maintain four registries for the obligations it incur:

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 - Registry of Allotment and Obligations – Capital Outlay (RAOCO)
- Registry of Allotment and Obligations – Maintenance and Other
Operating Expenses (RAOMO)
- Registry of Allotment and Obligations – Personal Services (RAOPS)
- Registry of Allotment and Obligations – Financial Expenses (RAOFE)
Recording of Allotments
Upon receipt of the approved ABM and ARO, it shall be recorded in the respective
registries through the Allotment and Obligation Slips (ALOBS). Separate
registries shall be maintained for the four classes of
Program/Project/activity(PPA).

ACCOUNTING OF OBLIGATIONS:
Obligation refers to a commitment by a government agency arising from an act
of a duly authorized official which binds the government to the immediate or
eventual payment of a sum of money. The agency is authorized to incur
obligations only in the performance of activities which are in pursuits of its
functions and programs authorized in appropriation acts/laws within the limit
of the ARO.
The Head of the Requesting Unit shall prepare the Obligation Request (ObR) or
Budget Utilization Request (BUR) and Disbursement Voucher. He shall certify on
the necessity and legality of charges to appropriations/allotment under his direct
supervision as well as the validity, propriety and legality of supporting
documents.
The Head of the Budget Unit shall certify the availability of allotment and
obligations incurred in the ObR or budget and utilization in the BUR. Obligations
shall be taken up in the registries maintained by the Budget Unit through the
ALOBS prepared/processed by the office. The Budget Officer verifies the
completeness of the documents. If complete, then prepares the ALOBS. Verifies
the availability of the allotment based on the RAOs. If no allotment is available,
returns the documents to the office concerned, if there is an available balance of
allotment to cover the obligations, prepares the ALOBS and record in the
appropriate RAOs.
The obligation is recognized and will be entered in the appropriate RAO when the
obligation is incurred as evidenced by the approved ALOBS. Obligations shall be
posted in the “Obligation Incurred” column of the RAOs to arrive at the balance
of allotment still available at a given period. There is no need to prepare a new
ALOBS for corrections/adjustments made by the accounting unit after the
processing of the claims but before payment is made. Adjustment in the RAOs

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shall be effected thru a positive entry (if additional obligation is necessary) or a
negative entry (if reduction) in the Obligation Incurred column.
The Head of the Accounting Unit, for contract or purchase order, shall certify
the availability of funds based on the ObR or BUR duly certified by the Budget
Officer and certify the availability of cash and completeness of supporting
documents in the DV.
The Head of the Accounting Unit shall also prepare the Daily Cash Position
Report to be submitted to the Head of the Agency.
A new ALOBS for the following adjustments of obligations as negative entries in
the Obligation Incurred column shall be made:
1. Refund of cash advance granted during the year;
2. Overpayment of expenses during the year;
3. Disallowances/charges which become final and executory
To support the negative entries, a certified copies of OR for the
overpayment/refunds shall be furnished to the
Budget Unit.
The Accountant shall credit “Cash-National Treasury-MDS” each time a payment
is made charged against the NCA and debit the specific account being paid for,
either asset or expense account.
Illustrative Entry:
a. Receipt of Allotment Posting in the allotment column to the respective
Registries.
b. Incurrence of obligation Posting in the obligation column of the RAO’s
Ex. RAOPS for PS obligations or
expenditures
Notice of Cash Allocation (NCA) specifies the maximum amount of withdrawal
that an agency can make from the National Treasury through the issuance of
MDS checks or other authorized mode of disbursement. This is issued by DBM
based on the Annual Cash Program or as requested and prescribed under the
Modified Disbursement System (MDS).
Upon receipt of the NCA, the accountant shall record in the books as:
Cash-National Treasury, MDS 106 XX
Subsidy Income from National

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Government 631 XX
Income/Collections and Deposits System
This system covers the processes of acknowledging and reporting
income/collections, deposits of collections with Authorized Government
Depository Bank (AGDB) or through the AGDB for the account of the Treasurer
of the Philippines, and recording of collections and deposits in the books of
accounts of the agency.
The sources of income and collections made by Agency are:
1. Taxes
2. Operating and Service Income
3. Grants and Donations
4. Borrowings
5. Miscellaneous Receipts
Methods of Accounting for Income:
1. Accrual Method – used when income is realized (earned) during the
accounting Period regardless of cash receipt. Account Receivable is set up and
the general or specific income accounts according to nature and classification
are credited.
2. Modified Accrual – income of an agency is recorded as “Deferred Credits to
Income” and the appropriate receivable account is debited. The income account
is recognized upon receipt of collection and the “Deferred Credits to Income”
account is adjusted accordingly.
3. Cash Basis - shall be used for all other taxes, fees, charges, and other
revenues where accrual method is impractical. The income account is credited
upon collection of the cash or its equivalent.
All collecting officers shall deposit intact all their collections with AGDB daily or
not later than the next banking day and shall record all the deposits made in the
Cash Receipts Record.
Only National Government Agencies shall maintain two sets of books:
1. Regular Agency books – this shall be used to record the regular transactions
of the agency like the receipt and utilization of Notice of Cash Allocation (NCA),
and collections of income and other receipts which the agency are authorize to
use. This shall consist of journals and ledgers, as follows:

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Journals:
Cash Receipts Journal (CRJ)
Cash Disbursement Journal (CDJ)
Check Disbursement Journal (CkDJ)
General Journal (GJ)
Ledgers:
General Ledger (GL)
Subsidiary Ledgers (SL)
2. National Government books – this shall be used to record collections, which
the agency cannot use but are required to be remitted to the Bureau of the
Treasury. These shall consist of the following:
Cash Journal
General Journal
General Ledger
Subsidiary Ledger
Receipt and Collection Process
1. The Collecting Officer (CO)receives payment from creditors and issues Official
Receipt.
2. The CO records collections in Cash Receipt Record.
3. The CO deposits collections.
4. The CO records deposit in Cash Receipt Record.
5. The CO prepares the Report of Collections and Deposits and forwards to
accounting unit with copies of official receipts and validated Deposit Slips.
6. The accounting unit prepares Journal Entry Voucher (JEV) and records in the
Cash Receipts Journal.
Types of collections as to authority to use:
1. Without authority to use.
2. With authority to use.
3. Authority with limitations
4. Income from sale of equipment.

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 5. Grants and donations intended for agency use.
6. Miscellaneous collections.
Illustrative Accounting Entries:
A. Without Authority to Use (NG Bks)
As a general rule, all revenues regardless of amount and frequency of
collection are to be remitted to the National Treasury. Such income shall be
recorded in a separate books of accounts NG Books.
1. Receipt of cash payment of hospital fees
Cash – collecting officers 102 xxx
Due to National Treasury 411 xxx
Hospital fees 596 xxx
2. Remittance to the treasury
Due to National Treasury 411 xxx
Hospital fees 596 xxx
Cash-collecting officers 102 xxx

B. With Authority to Use (RA Bks)

For agencies which are authorized to use income for their operations, the
collections shall be recorded as income in the Regular Agency (RA) books
1. Collection of prior year’s receivables
Cash- collecting officers 102 xx
Accounts Receivables 121 xx
2. Issuance of bill for the rent of an office space.
Accounts Receivables 111 xx
Rent/Lease income 574 xx
3, Record collection of rent payment.
Cash – collecting officer 102 xx
Accounts Receivable 111 xx
3. Record deposit in the bank.

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 Due from National Treasury 122 xx
Cash – collecting officer 102 xx
4. Release of NCA by DBM after request is be made to the Bu of Treasury to
use the deposited collections as augmentation of MOOE.
Cash-National Treasury, MDS 106 xx
Due from National Treasury 122 xx
5. Record disbursement for the repair (use of income).
Repairs and Maintenance -Buildings
and other Structures 804 xx
Cash-National Treasury, MDS 106 xx
6. Cash from another agency to implement its project (Inter-agency Transferred
Funds). Under existing regulations, the collections made by an Implementing
Agency (IA) of cash from a source agency (SA) to implement the latter’s project
shall be remitted by the recipient agency, the IA, to the BTr. The IA shall request
the necessary NCA from the DBM)
6.a Receipt of the check from the SA.
Cash – collecting officers 102 xx
Due to Other NGAs ( SA) 416 xx
6.b Remittance of cash to the BTr
Due from National Treasury 131 xx
Cash-collecting officers 102 xx
6.c Receipt of NCA from DBM
Cash-National Treasury, MDS 106 xx
Due from National Treasury 131 xx
6.d Purchase of technical equipment
Technical & Scientific Machinery
And Equipment 226 xx
Cash-National Treasury, MDS 106 xx
6.e Submission of liquidation report to the SA.
Due to Other NGAs 416 xx

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 Technical and Scientific
Machinery & Equipment 226 xx
If there is still a balance or refund of fund balances of completed projects.
Due to Other NGAs 416 xx
Cash-National Treasury, MDS 108 xx
C. Authority with Limitations
If the authority is subject to the limitation that any excess shall be remitted to
the National Treasury, such collections for seminar and convention fees, the
collections shall be recorded in the NG books. The expenses shall be journalized,
the balance/excess to be remitted to the National Treasury.
1. Record collection of (ex.) seminar fees.
Cash – collecting officer 102 xx
Seminar/Training fees 622 xx
2. Record deposit of collection.
Cash in Bank – Local Currency 111 xx
Cash – collecting officer 102 xx
3. Record payment of expenses.
Office supplies expense 755 xx
Cash in Bank – Local Currency 111 xx
To close the balance or unused income in RA and transfer to NG Bks.
Seminar/training fees 622 xx
Cash in Bank–Local Currency 111 xx
4. Record transfer in the NG Bks the unused collections.
Cash – collecting officer 102 xx
Due to NT 411 xx
( Seminar/Training fees 622- xx
5. Record remittance of excess to the Bu of Treasury through bank.
Due to NT 411 xx
(Seminar/training fees 622 xx)

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 Cash – collecting officer 102 xx
Income from Sale of Equipment
Proceeds from the sale of non-serviceable, obsolete and other unnecessary
equipment, including cars, vans and the like, may be requested for appropriation
to purchase a new one and for the repair and maintenance of existing vital
equipment. It should be noted that the purchase of cars and vans is subject to
the prior authority required under the existing rules.
Illustration:
The Agency A of the national government sold a non-serviceable car with
the following information:
Cost P500,000
Accumulated depreciation 250,000
Sales Price 300,000
The proceeds from sale were accordingly remitted to the National Treasury
through the bank. The agency received Special Allotment Release Order (SARO)
in the amount of P500,000 for the purchase of a new car with Notice of Cash
Allocation (NCA) in the amount of P450,000, net of withholding tax of P50,000.
After approval of the purchase order issued, the motor vehicle was delivered and
accordingly, paid in full, net of withholding tax. The said tax was afterwards
remitted to the Bureau of Internal Revenue through a Tax Remittance Advice
(TRA).
To record sale of motor vehicle.
Cash – collecting officer 102 300,000
Accumulated Depreciation-
Land Transport Equipt 314 250,000
Land Transport Equipment 214 500,000
Gain on Sale of Asset 623 50,000
Record Remittance of collection to the NT through the bank:
Gain on Sale of Asset 623 50,000
Government Equity 471 250,000
Cash – Collecting Officer 102 300,000
Receipt of SARO for the request to purchase a new one:

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 Record in the RAOCO under the Allotment Received column.
Record the NCA received:
Cash – NT, MDS 107 450,000
Subsidy Income from NG 631 450,000
To record obligation in the RAOCO:
Post the amount of obligation in the Obligation Column of the RAOCO.
To record accounts payable for the motor vehicle delivered:
Land Transport Equipment 214 500,000
Accounts Payable 401 500,000
To record full payment of obligation:
Accounts Payable 401 500,000
Due to BIR 412 50,000
Cash – NT, MDS 107 450,000
To record remittance of withholding tax through TRA.
Due to BIR 412 50,000
Subsidy Income from
National Government 631 50,000

EXERCISES:
1. VSMMC received an inter-fund transfer from DOH, Region 10, to implement a
medical mission program in the amount of P200,000. The funds were intended
to purchase the needed equipment. The project ended with a fund balance of
P15,000 and was returned to the source agency together with the liquidation
report and turn-over of equipment.
2. The Bureau of Plant Industry conducted a seminar regarding “Horticulture”.
The agency collected a total amount of P100,000, which was deposited with the
agency depository bank and paid the following expenses of the seminar: Office
Supplies, P25,000; Rent, P 20,000; and Printing and Binding, P7,000. The
excess of the amount collected was appropriately remitted to the NT.

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 Auditing Code of the Philippines
Preliminary Title
General Provisions
Section 1
Title. —
This law shall be known and cited as the "Government Auditing Code of the
Philippines."
Section 2
Declaration of Policy. —
It is the declared policy of the State that all resources of the government shall be
managed, expended or utilized in accordance with law and regulations, and
safeguarded against loss or wastage through illegal or improper disposition, with
a view to ensuring efficiency, economy and effectiveness in the operations of
government. The responsibility to take care that such policy is faithfully adhered
to rests directly with the chief or head of the government agency concerned.

Section 3
Definition of Terms. —
Wherever used in this Code, the following terms shall be taken and understood
in the sense indicated hereunder, unless the context otherwise requires:
1. "Fund" is a sum of money or other resources set aside for the purpose of
carrying out specific activities or attaining certain objectives in accordance
with special regulations, restrictions, or limitations, and constitutes an
independent fiscal and accounting entity.
2. "Government funds" includes public moneys of every sort and other
resources pertaining to any agency of the government.
3. "Revenue Funds" comprises all funds derived from the income of any
agency of the government and available for appropriation or expenditure
in accordance with law.
4. "Trust funds" refers to funds which have come officially into the possession
of any agency of the government or of a public officer as trustee, agent, or
administrator, or which have been received for the fulfillment of some
obligation.
5. "Depository funds" comprises funds over which the officer accountable
therefor may retain control for the lawful purposes for which they came
into his possession. It embraces moneys in any and all depositories.

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 6. "Depository" means any financial institution lawfully authorized to receive
government moneys upon deposit.
7. "Resources" refers to the actual assets of any agency of the government
such as cash, instruments representing or convertible to money,
receivables, lands, buildings, as well as contingent assets such as
estimated revenues applying to the current fiscal period not accrued or
collected and bonds authorized and unissued.
8. "Government agency" or "agency of the government," or "agency" refers to
any department, bureau or office of the national government, or any of its
branches and instrumentalities, or any political subdivision, as well as any
government-owned or controlled corporation, including its subsidiaries, or
other self-governing board or commission of the government.

Section 4
Fundamental Principles. —
Financial transactions and operations of any government agency shall be
governed by the fundamental principles set forth hereunder, to wit:
1. No money shall be paid out of any public treasury of depository except in
pursuance of an appropriation law or other specific statutory authority.
2. Government funds or property shall be spent or used solely for public
purposes.
3. Trust funds shall be available and may be spent only for the specific
purpose for which the trust was created or the funds received.
4. Fiscal responsibility shall, to the greatest extent, be shared by all those
exercising authority over the financial affairs, transactions, and operations
of the government agency.
5. Disbursements or disposition of government funds or property shall
invariably bear the approval of the proper officials.
6. Claims against government funds shall be supported with complete
documentation.
7. All laws and regulations applicable to financial transactions shall be
faithfully adhered to.
8. Generally accepted principles and practices of accounting as well as of
sound management and fiscal administration shall be observed, provided
that they do not contravene existing laws and regulations.

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 Title I
The Commission on Audit
Chapter 1
Organization
Section 5
Composition of the Commission on Audit Qualifications, Term, and Salary of
Members. —
1. The Commission on Audit, hereinafter referred to as the Commission, shall
be composed of a Chairman and two Commissioners, who shall be natural-
born citizens of the Philippines and, at the time of their appointment, at
least forty years of age and certified public accountants or members of the
Philippine Bar for at least ten years.
2. The Chairman and the Commissioners shall be appointed by the Prime
Minister for a term of seven years without reappointment. Of the
Commissioners first appointed, one shall hold office for seven years,
another for five years, and the third for three years. Appointment to any
vacancy shall only be for the unexpired portion of the term of the
predecessor.
3. The Chairman and each Commissioner shall receive as annual salary of
sixty thousand pesos and fifty thousand pesos, respectively, which shall
not be decreased during their continuance in office.
Section 6
The Commission Proper. —
1. For purposes of this Code and as a component of the organizational
structure of the Commission, the Chairman and the two Commissioners
shall together be known as the Commission Proper and as such shall be
distinguished from the other components of the Commission consisting of
the central and regional offices which are hereinafter created.
2. The Commission Proper shall sit as a body to determine policies,
promulgate rules and regulations, and prescribe standards governing the
performance by the Commission of its powers and functions.
3. The Chairman shall act as the presiding officer of the Commission Proper
and the chief executive officer of the Commission. As such chief executive
officer, he shall be responsible for the general administration of the
Commission.
4. The Chairman and each Commissioner shall have such technical and
clerical personnel in their respective offices as may be required by the
exigencies of the service.

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Section 7
Central and Regional Offices. —
1. The Commission shall have the following central offices:
1. Administrative Office
2. Planning, Financial, and Management Office
3. Legal Office
4. Accountancy Office
5. National Government Audit Office
6. Local Government Audit Office
7. Corporate Audit Office
8. Performance Audit Office
9. Manpower Development Office
10. Technical Service Office
These offices shall perform primarily staff functions, exercise technical
supervision over the regional offices in matters pertaining to their
respective functional areas, and perform such other functions as may be
assigned by the Chairman.
2. The Commission shall keep and maintain such regional offices as may be
required by the exigencies of the service in accordance with the Integrated
Reorganization Plan for the national government, or as may be provided
by law, which shall serve as the immediate representatives of the
Commission in the regions under the direct control and supervision of the
Chairman.
3. The central and regional offices shall each be headed by a Manager and a
Regional Director, respectively. The Manager of the Legal Office shall also
be known and shall act as the General Counsel of the Commission.

Section 8
Commission Secretariat. —
There shall be a Commission Secretariat to be headed by the Secretary to the
Commission who shall have the rank and privileges of a central office manager.

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Section 9
The Administrative Office. —
The Administrative Office shall perform the following functions:
1. Develop and maintain a personnel program which shall include
recruitment, selection, appointment, performance evaluation, employee
relations, and welfare services; and
2. Provide the Commission with services related to personnel, records,
supplies, equipment, medical, collections and disbursements, security,
general and other related services.

Section 10
The Planning, Financial, and Management Office. —
The Planning, Financial, and Management Office shall have the following
functions:
1. Formulate long-range and annual plans and programs for the
Commission;
2. Formulate basic policies and guidelines for the preparation of the budget
of the Commission, coordinate with the Budget Commission and the Office
of the President (Prime Minister) in the preparation of the said budget;
3. Maintain and administer the accounting system pertaining to the accounts
of the Commission;
4. Develop and administer a system for monitoring the prices of materials,
supplies, and equipment purchased by the government;
5. Develop and maintain the management information system of the
Commission; and
6. Develop and administer a management improvement program, including
a system for measurement of performance of auditing units on which an
annual report shall be submitted to the Chairman not later than the thirty-
first day of January each year.

Section 11
The Legal Office. —
The Legal Office shall be charged with the following responsibilities:
1. Perform advisory and consultative functions and render legal services with
respect to the performance of the functions of the Commission and the
interpretation of pertinent laws and auditing rules and regulations;

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 2. Handle the investigation of administrative cases filed against the personnel
of the Commission, evaluate and act on all reports of involvement of the
said personnel in anomalies or irregularities in government transactions,
and perform any other investigative work required by the Commission
upon assignment by the Chairman;
3. Represent the Commission in preliminary investigations of malversation
cases discovered in audit, assist and collaborate with the Solicitor General
and the Tanod Bayan in handling cases involving the Chairman or any of
the Commissioners, and other officials and employees of the Commission
in their official capacity; and
4. Coordinate, for the Commission and with the appropriate legal bodies of
government, with respect to legal proceedings towards the collection and
enforcement of debts and claims, and the restitution of funds and
property, found to be due any government agency in the settlement and
adjustment of its accounts by the Commission.

Section 12
The Accountancy Office. —
The Accountancy Office shall have the following functions:
1. Prepare, for the Commission, the annual financial report of the
Government, its subdivisions, agencies, and instrumentalities, including
government-owned or controlled corporations, and such other financial or
statistical reports as may be required by the Commission;
2. Verify appropriations of national government agencies and control fund
releases thereto; and
3. Prepare statements on revenues and expenditures of local government
units, and on their legal borrowing and net paying capacities for re-
classification and other purposes.

Section 13
The National Government Audit Office. —
The National Government Audit Office shall perform the following functions:
1. Formulate and develop plans, programs, operating standards, and
administrative techniques for the implementation of auditing rules and
regulations in departments, regions, bureau, and offices of the National
Government;
2. Formulate accounting rules and regulations for departments, regions,
bureaus, and offices of the National Government; and

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 3. Advise and assist the Chairman on matters pertaining to the audit of the
departments, regions, bureaus, and offices of the National Government.

Section 14
The Local Government Audit Office. —
The Local Government Audit Office shall have the following functions:
1. Formulate and develop plans, programs, operating standards, and
administrative techniques for the implementation of auditing rules and
regulations in local government units;
2. Formulate accounting rules and regulations for local government units;
and
3. Advise and assist the Chairman on matters pertaining to the audit of local
government units.

Section 15
The Corporate Audit Office. —
The Corporate Audit Office shall perform the following functions:
1. Formulate and develop plans, programs, operating standards, and
administrative techniques for the implementation of auditing rules and
regulations in government-owned or controlled corporations and self-
governing boards, commissions, or agencies of the government, as well as
for the conduct of audit of financial operations of public utilities and
franchises;
2. Formulate accounting rules and regulations for government-owned or
controlled corporations and self-governing boards, commissions, or
agencies of the government;
3. Advise and assist the Chairman on matters pertaining to the audit of
government-owned or controlled corporations and self-governing boards,
commissions, or agencies of the government; and
4. Consolidate the corporate audit reports from all the regions for inclusion
in the annual report of the Commission.

Section 16
The Performance Audit Office. —
The Performance Audit Office shall have the following functions:

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 1. Conduct, consistently with the exercise by the Commission of its visitorial
powers as hereinafter conferred, variable scope audit of non-governmental
firms subsidized by the government or government authority, or those
required to pay levies or government share, those funded by donations
through the government, and those for which the government has put up
a counterpart fund: Provided, That such audits shall be limited to the
funds or subsidies coming from the government; and
2. Undertake audits of the legality of government expenditures, with
particular emphasis on the statutory authority governing the usage of
appropriated funds.

Section 17
The Manpower Development Office. —
The Manpower Development Office shall perform the following functions:
1. Formulate long-range plans for a comprehensive training program for all
personnel of the Commission and personnel of the agencies of government,
with respect to Commission rules and regulations and audit matters;
2. Prepare and implement annual training programs, consistent with its
long-range plans;
3. Develop its capability to implement training programs;
4. Set up and maintain a library for the Commission; and
5. Publish the professional journal of the Commission.

Section 18
The Technical Service Office. —
The Technical Service Office shall perform the following functions:
1. Develop and propose auditing systems for implementation in the
government;
2. Render consultancy services related to the discharge of government
auditing functions;
3. Assist in the formulation of accounting rules and regulations and in seeing
to it that these are observed by agencies of government, in coordination
with the Accountancy Office;
4. Review and evaluate contracts, and inspect and appraise infrastructure
projects; and
5. Initiate special studies on auditing matters.

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Section 19
The Regional Offices. —
Each regional office shall perform the following functions:
1. Exercise supervision and control over the implementation of auditing rules
and regulations in any agency of the government with principal offices or
place of operations within the region, including the National Assembly;
2. Review, analyze and consolidate local, national and corporate audit reports
pertaining to the region;
3. Upon delegation by the Commission Proper, exercise authority on internal
Commission administration on personnel, planning, financial (budgetary
and accounting), and legal matters pertaining to the region; and
4. Perform such other related functions as may be assigned by the Chairman.

Section 20
Auditing Units; Qualifications and Assignment of Heads. —
1. There shall be in each agency of the government an auditing unit which
shall be provided by the audited agency with a suitable and sufficient office
space together with supplies, equipment, furniture, and other necessary
operating expenses for its proper maintenance, including expenses for
travel and transportation.
2. The auditing unit shall be headed by an auditor assigned by the
Commission who shall be a certified public accountant or a member of the
Bar or a holder of a college degree in commerce or business administration,
major in accounting.
3. The corresponding assignment orders issued by the Commission to such
auditors and their support personnel holding core auditing positions shall
be supplementary to their appointments which are without specification
of station.
4. The Commission shall have the authority to make changes in such
assignments and to effect a periodic reshuffle of heads of auditing units as
well as their support personnel whenever the exigencies of the service so
require. However, such changes and reshuffle shall not affect the tenure
of office of the incumbents of the positions involved and shall not
constitute a demotion or reduction in rank or salary, nor result in a change
in status.

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Section 21
Auditing Units for Newly-Created Agencies. —
The creation of every new agency shall be construed to include the establishment
of an auditing unit therein, and the appropriation or allotment therefor is deemed
to include the amounts necessary to provide such agency with adequate auditing
services as determined by the Commission.
Section 22
Number and Compensation of Auditing Personnel. —
1. The assignment of Commission representatives and support personnel to
agencies of the government shall be determined solely by the Commission.
2. The salaries and other forms of compensation of the personnel of the
Commission shall follow a common position classification and
compensation plan regardless of agency of assignment, and shall be
subject to P.D. No. 985.
3. All officials and employees of the Commission, including its
representatives and support personnel shall be paid their salaries,
emoluments, and allowances directly by the Commission out of its
appropriations and contributions, as provided in this Code.
Section 23
Professionalization of Audit Service. —
The Commission shall develop and adopt for its officials and employees a
comprehensive and continuing manpower development program.
Section 24
Appropriations and Funding. —
1. The amount of appropriations for the annual operating expenses of the
Commission, including the salaries, allowances and other emoluments of
all its officials and employees in its central and regional offices as well as
in the auditing units in the various national and local government
agencies, including government-owned or controlled corporations, shall be
included in the annual general appropriations law. The usage of these
funds shall be governed by the general appropriations and other budget
laws;
2. All government-owned or controlled corporations, including their
subsidiaries, and self-governing boards, commissions, or agencies of the
government shall appropriate in their respective budgets and remit to the
National Treasury an amount at least equivalent to the appropriation for
the salaries and allowances of the representative and staff of the
Commission during the preceding fiscal year;

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 3. A maximum of one-half of one per-centum (1/2 of 1%) of the collections
from national internal revenue taxes not otherwise accruing to Special
Funds or Special Accounts in the General Fund of the National
Government, upon authority from the Minister (Secretary) of Finance,
shall be deducted from such collections and shall be remitted to the
National Treasury to cover the cost of auditing services rendered to local
government units;
4. The amount estimated to be earned as a result of the assessments on
government-owned or controlled corporations, local government units, and
other agencies as provided for in this Section shall be taken into
consideration in the preparation of the annual budget of the Commission,
in accordance with pertinent budget laws. The General Appropriations law
shall provide each year for the cost of Commission operations as may be
supported by available funds, in order to meet the audit requirements of
national and local government units and of government-owned or
controlled corporations and other agencies covered by this Code.
Chapter 2
Jurisdiction, Powers and Functions of the Commission
Section 25
Statement of Objectives. —
In keeping with its Constitutional mandate, the Commission adheres to the
following primary objectives:
1. To determine whether or not the fiscal responsibility that rests directly
with the head of the government agency has been properly and effectively
discharged;
2. To develop and implement a comprehensive audit program that shall
encompass an examination of financial transactions, accounts, and
reports, including evaluation of compliance with applicable laws and
regulations;
3. To institute control measures through the promulgation of rules and
regulations governing the receipts, disbursements, and uses of funds and
property, consistent with the total economic development effort of the
government;
4. To promulgate auditing and accounting rules and regulations so as to
facilitate the keeping, and enhance the information value, of the accounts
of the government;
5. To adopt measures calculated to hasten the full professionalization of its
services;
6. To institute measures designed to preserve and ensure the independence
of its representatives; and

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 7. To endeavor to bring its operations closer to the people by the delegation
of authority through decentralization, consistent with the provisions of the
new Constitution and the laws.
Section 26
General Jurisdiction. —
The authority and powers of the Commission shall extend to and comprehend
all matters relating to auditing procedures, systems and controls, the keeping of
the general accounts of the Government, the preservation of vouchers pertaining
thereto for a period of ten years, the examination and inspection of the books,
records, and papers relating to those accounts; and the audit and settlement of
the accounts of all persons respecting funds or property received or held by them
in an accountable capacity, as well as the examination, audit, and settlement of
all debts and claims of any sort due from or owing to the Government or any of
its subdivisions, agencies and instrumentalities. The said jurisdiction extends to
all government-owned or controlled corporations, including their subsidiaries,
and other self-governing boards, commissions, or agencies of the Government,
and as herein prescribed, including non-governmental entities subsidized by the
government, those funded by donations through the government, those required
to pay levies or government share, and those for which the government has put
up a counterpart fund or those partly funded by the government.

Section 27
Appointing Power. —
The Commission Proper shall appoint, subject to Civil Service Law, the officials
and employees of the Commission whenever they are stationed or assigned.

Section 28
Examining Authority. —
The Commission shall have authority to examine books, papers, and documents
filed by individuals and corporations with, and which are in the custody of,
government offices in connection with government revenue collection operations,
for the sole purpose of ascertaining that all funds determined by the appropriate
agencies as collectible and due the government have actually been collected,
except as otherwise provided in the Internal Revenue Code of 1977.

Section 29
Visitorial Authority. —

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 1. The Commission shall have visitorial authority over non-government
entities subsidized by the government, those required to pay levies or
government share, those which have received counterpart funds from the
government or are partly funded by donations through the government,
the said authority however pertaining only to the audit of those funds or
subsidies coming from or through the government.
2. Upon direction of the President (Prime Minister), the Commission shall
likewise exercise visitorial authority over non-governmental entities whose
loans are guaranteed by the Government, provided that such authority
shall pertain only to the audit of the government's contingent liability.

Section 30
Fees for Audit and Other Services. —
1. The Commission shall fix and collect reasonable fees for the different
services rendered to non-government entities that shall be audited in
connection with their dealings with the government arising from subsidies,
counterpart funding by government, or where audited records become the
basis for a government levy or share. Fees of this nature shall accrue to
the General Fund and shall be remitted to the Treasurer of the Philippines
within 10 days following completion of the audit.
2. Whenever the Commission contracts with any government entity, to render
audit and related services beyond the normal scope of such services, the
Commission is empowered to fix and collect reasonable fees. Such fees
shall either be appropriated in the agency's current budget, charged
against its savings, or appropriated in its succeeding year's budget.
Remittance shall accrue to the General Fund and shall be made to the
Treasurer of the Philippines within the time provided for in the contract of
service, or in the billing rendered by the Commission.

Section 31
Deputization of Private Licensed Professionals to Assist Government Auditors. —
1. The Commission may, when the exigencies of the service so require,
deputize and retain in the name of the Commission such certified public
accountants and other licensed professionals not in the public service as
it may deem necessary to assist government auditors in undertaking
specialized audit engagements.
2. The deputized professionals shall be entitled to such compensation and
allowances as may be stipulated, subject to pertinent rules and regulations
on compensation and fees.

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Section 32
Government Contracts for Auditing, Accounting, and Related Services. —
1. No government agency shall enter into any contract with any private
person or firm for services to undertake studies and services relating to
government auditing, including services to conduct, for a fee, seminars or
workshops for government personnel on these topics, unless the proposed
contract is first submitted to the Commission to enable it to determine if
it has the resources to undertake such studies or services. The
Commission may engage the services of experts from the public or private
sector in the conduct of these studies.
2. Should the Commission decide not to undertake the study or service, it
shall nonetheless have the power to review the contract in order to
determine the reasonableness of its costs.

Section 33
Prevention of Irregular, Unnecessary, Excessive, or Extravagant Expenditures of
Funds or Uses of Property; Power to Disallow such Expenditures. —
The Commission shall promulgate such auditing and accounting rules and
regulations as shall prevent irregular, unnecessary, excessive, or extravagant
expenditures or uses of government funds or property.
Section 34
Settlement of Accounts Between Agencies. —
The Commission shall have the power, under such regulations as it may
prescribe, to authorize and enforce the settlement of accounts subsisting
between agencies of the government.

Section 35
Collection of Indebtedness Due the Government. —
The Commission shall, through proper channels, assist in the collection and
enforcement of all debts and claims, and the restitution of all funds or the
replacement or payment at a reasonable price of property, found to be due the
Government, or any of its subdivisions, agencies or instrumentalities, or any
government-owned or controlled corporation or self-governing board,
commission or agency of the government, in the settlement and adjustment of
its accounts. If any legal proceeding is necessary to that end, the Commission
shall refer the case to the Solicitor General, the Government Corporate Counsel,
or the legal staff of the creditor government office or agency concerned to institute
such legal proceeding. The Commission shall extend full support in the litigation.

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All such moneys due and payable shall bear interest at the legal rate from the
date of written demand by the Commission.
Section 36
Power to Compromise Claims. —
1. When the interest of the government so requires, the Commission may
compromise or release in whole or in part, any claim or settled liability to
any government agency not exceeding ten thousand pesos and with the
written approval of the Prime Minister, it may likewise compromise or
release any similar claim or liability not exceeding one hundred thousand
pesos, the application for relief therefrom shall be submitted, through the
Commission and the Prime Minister, with their recommendations, to the
National Assembly.
2. The respective governing bodies of government-owned or controlled
corporations, and self-governing boards, commissions, or agencies of the
government shall have the exclusive power to compromise or release any
similar claim or liability when expressly authorized by their charters and
if in their judgment, the interest of their respective corporations or
agencies so requires. When the charters do not so provide, the power to
compromise shall be exercised by the Commission in accordance with the
preceding paragraph.
3. The Commission may, in the interest of the government, authorize the
charging or crediting to an appropriate account in the National Treasury,
small discrepancies (average or shortage) in the remittances to and
disbursements of the National Treasury, subject to the rules and
regulations as it may prescribe.

Section 37
Retention of Money for Satisfaction of Indebtedness to Government. —
When any person is indebted to any government agency, the Commission may
direct the proper officer to withhold the payment of any money due such person
or his estate to be applied in satisfaction of the indebtedness.

Section 38
Authority to Examine Accounts of Public Utilities. —
1. The Commission shall examine and audit the books, records, and
accounts of public utilities in connection with the fixing of rates of every
nature, or in relation to the proceedings of the proper regulatory agencies,
for purposes of determining franchise taxes.

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 2. During the examination and audit, the public utility concerned shall
produce all the reports, records, books of accounts and such other papers
as may be required. The Commission shall have the power to examine
under oath any official or employee of the said public utility.
3. Any public utility refusing to allow an examination and audit of its books
of accounts and pertinent records, or offering unnecessary obstruction to
the examination and audit, or found guilty of concealing any material
information concerning its financial status shall be subject to the penalties
provided by law.

Section 39
Submission of Papers Relative to Government Obligations. —
1. The Commission shall have the power, for purposes of inspection, to
require the submission of the original of any order, deed, contract, or other
document under which any collection of, or payment from, government
funds may be made together with any certificate, receipt, or other evidence
in connection therewith. If an authenticated copy is needed for record
purposes, the copy shall upon demand be furnished.
2. In the case of deeds to property purchased by any government agency, the
Commission shall require a certificate of title entered in favor of the
government or other evidence satisfactory to it that the title is in the
government.
3. It shall be the duty of the officials or employees concerned, including those
in non-government entities under audit, or affected in the audit of
government and non-government entities, to comply promptly with these
requirements. Failure or refusal to do so without justifiable cause shall
constitute a ground for administrative disciplinary action as well as for
disallowing permanently a claim under examination, assessing additional
levy or government share, or withholding or withdrawing government
funding or donations through the government.

Section 40
Investigatory and Inquisitorial Powers; Power to Punish for Contempt. —
1. The Chairman or any Commissioner of the Commission, the central office
managers, the regional directors, the auditors of any government agency,
and any other official or employee of the Commission specially deputed in
writing for the purpose by the Chairman shall, in compliance with the
requirement of due process, have the power to summon the parties to a
case brought before the Commission for resolution, issue subpoena and
subpoena duces tecum, administer oaths, and otherwise take testimony

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 in any investigation or inquiry on any matter within the jurisdiction of the
Commission.
2. The Commission shall have the power to punish contempts provided for in
the Rules of Court, under the same procedure and with the same penalties
provided therein. Any violation of any final and executory decision, order
or ruling of the Commission shall constitute contempt of the Commission.

Section 41
Annual Report of the Commission. —
1. The Commission shall submit to the President, the Prime Minister, and
the National Assembly not later than the last day of September of each
year an annual report on the financial condition and results of operation
of all agencies of the government which shall include recommendations of
measures necessary to improve the efficiency and effectiveness of these
agencies.
2. To carry out the purposes of this section, the chief accountant or the
official in charge of keeping the accounts of a government agency shall
submit to the Commission year-end trial balances and such other
supporting or subsidiary statements as may be required by the
Commission not later than the fourteenth day of February. Trial balances
returned by the Commission for revision due to non-compliance with
accounting rules and regulations, shall be resubmitted within three days
after the date of receipt by the official concerned.
3. Failure on the part of any official or employee to comply with the provisions
of the immediately preceding paragraph shall cause the automatic
suspension of the payment of his salary and other emoluments until he
shall have complied therewith. The violation of these provisions for at least
three times shall subject the offender to administrative disciplinary action.

Section 42
Statement of Monthly Receipts and Disbursements. —
The Commission shall forward to the Minister (Secretary) of Finance, as soon as
practicable and within sixty days after the expiration of each month, a statement
of all receipts of the national government of whatever class, and payments of
moneys made on warrants or otherwise during the preceding month.

Section 43
Powers, Functions, and Duties of Auditors as Representatives of the
Commission. —

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 1. The auditors shall exercise such powers and functions as may be
authorized by the Commission in the examination, audit and settlement
of the accounts, funds, financial transactions, and resources of the
agencies under their respective audit jurisdiction.
2. A report of audit for each calendar year shall be submitted on the last
working day of February following the close of the year, by the head of each
auditing unit through the Commission to the head or the governing body
of the agency concerned, and copies thereof shall be furnished the
government officials concerned or authorized to receive them. Subject to
such rules and regulations as the Commission may prescribe from time to
time, the report shall set forth the scope of audit and shall include a
statement of financial condition; a statement of surplus or deficit analysis;
a statement of operations; a statement of changes in financial position;
and such comments and information as may be necessary together with
such recommendations with respect thereto as may be advisable,
including a report of any impairment of capital noted in the audit. It shall
also show specifically any program, expenditure, or other financial
transaction or undertaking observed in the course of audit which in the
opinion of the auditor has been carried out or made without authority of
law. The auditor shall render such other reports as the Commission may
require.
3. In the performance of their respective audit functions as herein specified,
the auditors shall employ such auditing procedures and techniques as are
determined by the Commission under regulations that it may promulgate.
4. The auditors in all auditing units shall have the custody, and be
responsible for the safekeeping and preservation of paid expense vouchers,
journal vouchers, stubs of treasury warrants or checks, reports of
collections and disbursements and similar documents together with their
respective supporting papers, under regulations of the Commission.

Section 44
Check and Audit of Property or Supplies. —
The auditor shall from time to time conduct a careful and thorough check and
audit of all property or supplies of the agency to which he is assigned. Such
check and audit shall not be confined to a mere inspection and examination of
the pertinent vouchers, inventories, and other papers but shall include an ocular
verification of the existence and condition of the property or supplies. The
recommendation of the auditor shall be embodied in the proper report.

Section 45
Annual Audit and Work Program. —

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Each auditor who is the head of an auditing unit shall develop and devise an
annual work program and the necessary audit program for his unit in
accordance with regulations of the Commission.

Section 46
Seizure of Office by Auditor. —
1. The books accounts, papers and cash of any local treasurer or other
accountable officer shall at all times be open to the inspection of the
Commission or its duly authorized representative.
2. In case an examination of the accounts of a local treasurer discloses a
shortage in cash which should be on hand, it shall be the duty of the
examining officer to seize the office and its contents, notify the Commission
and the local chief executive and thereupon immediately take full
possession of the office and its contents, close and render his accounts to
the date of taking possession, and temporarily continue the public
business of such office.
3. The auditor who takes possession of the office of the local treasurer under
this section shall ipso facto supersede the local treasurer until the officer
involved is restored, or other provision has been lawfully made for filling
the office.

Section 47
Constructive Distraint of Property of Accountable Officer. —
1. Upon discovery in audit of a shortage in the accounts of any accountable
officer and upon a finding of a prima facie case of malversation of public
funds or property against him, in order to safeguard the interest of the
Government, the Commission may place under constructive distraint
personal property of the accountable officer concerned where there is
reasonable ground to believe that the said officer is retiring from the
government service or intends to leave the Philippines or remove his
property therefrom or hide or conceal his property.
The constructive distraint shall be effected by requiring the accountable
officer concerned or any other person having possession or control of the
property to accomplish a receipt in the form prescribed by the
Commission, covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to dispose of it in any
manner whatever without the express authority of the Commission.
2. In case the said accountable officer or other person having the possession
and control of the property sought to be placed under constructive
distraint refuses or fails to accomplish the receipt herein referred to, the

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 representative of the Commission, effecting the constructive distraint shall
proceed to prepare a list of such property and in the presence of two
witnesses leave a copy thereof in the premises where the property
distrained is located after which the said property shall be deemed to have
been placed under the constructive distraint.

Chapter 3
Decisions of the Commission
Section 48
Appeal from Decision of Auditors. —
Any person aggrieved by the decision of an auditor of any government agency in
the settlement of an account or claim may within six months from receipt of a
copy of the decision appeal in writing to the Commission.

Section 49
Period for Rendering Decisions of the Commission. —
The Commission shall decide any case brought before it within sixty days from
the date of its submission for resolution. If the account or claim involved in the
case needs reference to other persons or offices, or to a party interested, the
period shall be counted from the time the last comment necessary to a proper
decision is received by it.

Section 50
Appeal from Decisions of the Commission. —
The party aggrieved by any decision, order, or ruling of the Commission may
within thirty days from his receipt of a copy thereof appeal on certiorari to the
Supreme Court in the manner provided by law and the Rules of Court. When the
decision, order, or ruling adversely affects the interest of any government agency,
the appeal may be taken by the proper head of that agency.

Section 51
Finality of Decisions of the Commission or Any Auditor. —
A decision of the Commission or of any auditor upon any matter within its or his
jurisdiction, if not appealed as herein provided, shall be final and executory.
Section 52
Opening and Revision of Settled Accounts. —

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 1. At any time before the expiration of three years after the settlement of any
account by an auditor, the Commission may motu propio review and revise
the account or settlement and certify a new balance. For that purpose, it
may require any account, vouchers, or other papers connected with the
matter to be forwarded to it.
2. When any settled account appears to be tainted with fraud, collusion, or
error calculation, or when new and material evidence is discovered, the
Commission may, within three years after the original settlement, open the
account, and after a reasonable time for reply or appearance of the party
concerned, may certify thereon a new balance. An auditor may exercise
the same power with respect to settled accounts pertaining to the agencies
under his audit jurisdiction.
3. Accounts once finally settled shall in no case be opened or reviewed except
as herein provided.

Title II
Government Auditing
Chapter 1
Basic Policies and Standards
Section 53
Definition of Government Auditing. —
Government auditing is the analytical and systematic examination and
verification of financial transactions, operations, accounts, and reports of any
government agency for the purpose of determining their accuracy, integrity, and
authenticity, and satisfying the requirements of law, rules and regulations.
The conduct of government audit shall conform with the auditing standards set
forth in the following three sections.

Section 54
General Standards. —
1. The audit shall be performed by a person possessed with adequate
technical training and proficiency as auditor.
2. In all matters relating to the audit work, the auditor shall maintain
complete independence, impartiality and objectivity shall avoid any
possible compromise of his independence or any act which may create a
presumption of lack of independence or the possibility of undue influence
in the performance of his duties.
3. The auditor shall exercise due professional care and be guided by
applicable laws, regulations and the generally accepted principles of

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 accounting in the performance of the audit work as well as in the
preparation of audit and financial reports.

Section 55
Examination and Evaluation Standards. —
1. The audit work shall be adequately planned and assistants shall be
properly supervised.
2. A review shall be made of compliance with legal and regulatory
requirements.
3. An evaluation shall be made of the system of internal control and related
administrative practices to determine the extent they can be relied upon
to ensure compliance with laws and regulations and to provide for efficient,
economical and effective operations.
4. The auditor shall obtain through inspections, observation, inquiries,
confirmation and other techniques, sufficient competent evidential matter
to afford himself a reasonable basis for his opinions, judgments,
conclusions, and recommendations.
Section 56
Reporting Standards. —
1. Audit reports shall be dated, signed manually and shall be issued and
distributed in the manner provided by regulations of the Commission.
2. Audit reports shall contain basically the transmittal statement, scope and
objectives of the audit and time period examined highlights, financial
information, findings, recommendations and conclusions as well as other
data that may provide the management of the audited agency with the
necessary input for the decision-making process. Tables, charts, graphs
and other data to detail the conditions and facts shall be used in proper
cases.
3. Audit reports shall meet the following reporting criteria:
1. Factual matter must be accurately, completely and fairly presented.
2. Findings must be presented objectively and in language as clear and
simple as the subject matter permits.
3. Findings must be adequately supported by evidence in the audit
working papers.
4. Reports must be concise yet complete enough to be readily
understood by the users.

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 5. Information on underlying causes of problems must be included so
as to assist in implementing or devising corrective actions.
4. Audit reports shall:
1. Put primary emphasis on improvement, critical comments shall be
presented in balanced perspective, recognizing unusual difficulties
or circumstances faced by officials concerned.
2. Identify and explain issued and questions needing further study and
consideration by the auditor, the agency or others.
3. Include recognition or noteworthy accomplishments particularly
when management improvements in one area or activity may be
applied elsewhere.
4. Include recognition of the views of responsible officials of the agency
audited on the auditors findings, conclusions and
recommendations. Except where the possibility of fraud or other
compelling reason may require different treatment, the auditor's
tentative findings and conclusions should be reviewed with officials.
When possible, without undue delay, their view should be obtained
in writing and objectively considered and presented in the final
report.
5. State whether any significant pertinent information has been
omitted because it is deemed confidential. The nature of such
information should be described and the law or other basis under
which it is withheld should be stated.
5. Audit reports accompanying financial reports shall:
1. State whether the audit was made in accordance with generally
accepted auditing standards, and shall disclose the omission of any
auditing procedure generally recognized as normal or deemed
necessary by him under the circumstances of a particular case, as
well as the reasons for the omission. Nothing in this section,
however, shall be construed to imply authority for the omission of
any procedure which auditors would ordinarily employ in the course
of audit.
2. Express the auditor's opinion with respect to —
i) whether the financial report have been presented fairly in
accordance with applicable laws and regulations and the generally
accepted accounting principles applied on a consistent basis.
ii) material changes in accounting principles and practices and their
effect on the financial reports.

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 3. Identity any matter to which he takes exception and shall
specifically and clearly state his exceptions together with a
statement on the effect thereof, to the extent practicable, on the
related financial report.
4. Contain appropriate supplementary explanatory information about
the contents of the financial report as may be necessary for full and
informative disclosure about the financial operations of the agency
audited.
5. Explain violations of legal or other regulatory requirements,
including instances of non-compliance.
Chapter 2
Audit Objectives
Section 57
Determination of Audit Procedures. —
In the determination of auditing procedures and techniques to be followed and
the extent of examination of vouchers and other documents by government
auditors, the Commission shall give due regard to generally accepted principles
of auditing and accounting organizations and systems, including consideration
of the effectiveness of internal control and related administrative practices of the
audited agencies.
Section 58
Audit of Assets. —
The examination and audit of assets shall be performed with a view to
ascertaining their existence ownership, valuation and encumbrances as well as
the propriety of items composing the respective asset accounts, determining their
agreement with records; proving the accuracy of such records; ascertaining if the
assets were utilized economically, efficiently and effectively; and evaluating the
adequacy of controls over the accounts.
Section 59
Audit of Liabilities. —
In his audit of liabilities the auditor shall seek to establish that all obligations of
the agency have been accurately recorded; only bona fide obligations of the
agency have been included; the obligations incurred are properly authorized; all
provisions of trust indentures or mortgages are complied with; and mortgages
and other encumbrances are fully disclosed.
Section 60
Audit of Revenue Accounts. —

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The examination and audit of revenue accounts shall be performed with a view
to ascertaining that earned revenues have been duly recorded; and all recorded
revenues have been earned and appropriate classifications of revenues have been
consistently followed.
Section 61
Audit of Expense Accounts. —
The examination of expense accounts shall be undertaken to ascertain that all
expenses incurred have been duly authorized; adequately funded and
documented; properly recorded; all recorded expenses have been actually
incurred; and the classifications of expenses are appropriate and have been
consistently followed.
Section 62
Audit of Surplus or Networth. —
The audit of surplus or networth shall seek to determine the nature of the
surplus, whether current or invested surplus; the amount of current surplus
available to cover appropriations for the operational expenses of the government,
the propriety of the ledger accounts and balance sheet presentation account; and
the proper authority and recording of changes in the capital structure made
during the period under audit.
Chapter 3
Receipt and Disposition of Funds and Property
Section 63
Accounting for Moneys and Property Received by Public Officials. —
Except as may otherwise be specifically provided by law or competent authority
all moneys and property officially received by a public officer in any capacity or
upon any occasion must be accounted for as government funds and government
property. Government property shall be taken up in the books of the agency
concerned at acquisition cost or an appraised value.

Section 64
Designation of Collecting Officers for Government Agencies. —
The head of an agency may designate such number of collecting officers or agents
as may be deemed necessary. They shall render reports of their collections, under
the regulations of the Commission, to be submitted promptly to the auditor
concerned who shall conduct the necessary examination and audit within thirty
days from receipt thereof.
Section 65
Accrual of Income to Unappropriated Surplus of the General Fund. —

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 1. Unless otherwise specifically provided by law, all income accruing to the
agencies by virtue of the provisions of law, orders and regulations shall be
deposited in the National Treasury or in any duly authorized government
depository, and shall accrue to the unappropriated surplus of the General
Fund of the Government.
2. Amounts received in trust and from business-type activities of government
may be separately recorded and disbursed in accordance with such rules
and regulations as may be determined by a Permanent Committee
composed of the Secretary (Minister) of Finance as Chairman, and the
Commissioner of the Budget and the Chairman, Commission on Audit, as
members.
Section 66
Special, Fiduciary and Trust Funds. —
Receipts shall be recorded as income of Special, Fiduciary or Trust Funds or
Funds other than the General Fund only when authorized by law as implemented
by rules and regulations issued by the Permanent Committee created in the
preceding section.

Section 67
Warrants and Checks Receivables in Payment for Taxes or Other Indebtedness
to the Government. —
1. An officer charged with the collection of revenue or the receiving of moneys
payable to the government shall accept payment for taxes, dues or other
indebtedness to the government in the form of checks and warrants issued
in payment of government obligations, upon proper indorsement and
identification of the payee or endorsee. Checks drawn in favor of the
government in payment of any such indebtedness shall likewise be
accepted by the officer concerned.
2. When a check drawn in favor of the government is not accepted by the
drawee bank for any reason, the drawer shall continue to be liable for the
sum due and all penalties resulting from delayed payment. Where the
reason for non-acceptance by the drawee bank is insufficiency of funds,
the drawer shall be criminally liable therefor.
3. At no instance should money in the hands of the collecting officer be
utilized for the purpose of encashing private checks.
Section 68
Issuance of Official Receipt. —
1. No payment of any nature shall be received by a collecting officer without
immediately issuing an official receipt in acknowledgement thereof. The

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 receipt may be in the form of postage, internal revenue or documentary
stamps and the like, or officially numbered receipts, subject to proper
custody, accountability, and audit.
2. Where mechanical devices are used to acknowledge cash receipts, the
Commission may approve, upon request, exemption from the use of
accountable forms.

Section 69
Deposit of Moneys in the Treasury. —
1. Public officers authorized to receive and collect moneys arising from taxes,
revenues, or receipts of any kind shall remit or deposit intact the full
amounts so received and collected by them to the treasury of the agency
concerned and credited to the particular accounts to which the said
moneys belong. The amount of the collections ultimately payable to other
agencies of the government shall thereafter be remitted to the respective
treasuries of these agencies, under regulations which the Commission and
the Department (Ministry) of Finance shall prescribe.
2. When exigencies of the service so require, under such rules and
regulations as the Commission and the Department (Ministry) of Finance
may prescribe, postmasters may be authorized to use their collections to
pay money orders, telegraphic transfer and withdrawals from the proper
depository bank whenever their cash advance funds for the purpose have
been exhausted. The amount of collections so used shall be restored upon
receipt by the postmaster of the replenishment of his cash advance.
3. Pending remittance to the proper treasury, collecting officers may
temporarily deposit collections received by them with any treasury, subject
to regulations of the Commission.
4. The respective treasuries of those agencies shall in turn deposit with the
proper government depository the full amount of the collections not later
than the following banking day.
Section 70
Acknowledgement of Receipt for Funds. —
Under such rules and regulations as the Commission and the Department
(Ministry) of Finance may prescribe, the Treasurer of the Philippines and all
authorized depository banks shall acknowledge receipt of all funds received by
them, the acknowledgement bearing the date of actual remittance or deposit and
indicating from whom and on what account it was received.
Section 71
Creditors' Unclaimed Balances. —

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 1. There shall be maintained in the books of the Commission an account
designated "Creditors' Unclaimed Balances" to the credit of which shall be
deposited all moneys for which there is no present rightful claimant.
Money accruing to this account shall be held exclusively for the payment
of pertinent obligations against it, when certified by the Commission, not
in excess of the respective amounts which accrued to that account by
reason of these obligations.
2. After remaining unclaimed for a period of ten years, money in this account
shall revert as treasury funds, to the agency that made the deposit, or, in
the absence thereof to the national government.
Section 72
Shipment of Government Funds or Property by Carrier; Notation of Evidence of
Loss. —
When government funds or property are transported from one place to another
by carrier, it shall be upon proper bill of lading or receipt from the carrier, and
it shall be the duty of the consignee or his representative to make full notation
of any evidence of loss, shortage, or damage, upon the bill of lading or receipt
before accomplishing it.
Section 73
Credit for Loss Occurring in Transit or Due to Casualty or Force Majeure. —
1. When a loss of government funds or property occurs while they are in
transit or the loss is caused by fire, theft, or other casualty or force
majeure, the officer accountable therefore or having custody thereof shall
immediately notify the Commission or the auditor concerned and, within
thirty days or such longer period as the Commission or auditor may in the
particular case allow, shall present his application for relief, with the
available supporting evidence. Whenever warranted by the evidence credit
for the loss shall be allowed. An officer who fails to comply with this
requirement shall not be relieved of liability or allowed credit for any loss
in the settlement of his accounts.
2. The Commission shall promulgate rules and regulations to implement the
provisions of this section.
Section 74
Monthly Reports of Depositories to Agency Head. —
At the close of each month, depositories shall report to the agency head, in such
form as he may direct, the condition of the agency account standing on their
books. The head of the agency shall see to it that a reconciliation is made between
the balance shown in the reports and the balance found in the books of the
agency.

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Section 75
Transfer of Funds from One Officer to Another. —
Transfer of government funds from one officer to another shall, except as allowed
by law or regulation, be made only upon prior direction or authorization of the
Commission or its representative.
Section 76
Transfer of Property Between Government Agencies. —
Any government property that is no longer serviceable or needed by the agency
to which it belongs may be transferred without cost, or at an appraised value, to
other agencies of the government upon authority of the respective heads of
agencies in the national government, or of the governing bodies of government-
owned or controlled corporations, other self-governing boards or commissions or
the government, or of the local legislative bodies for local government units
concerned.
Section 77
Invoice and Receipt Upon Transfer of Funds or Property. —
When government funds or property are transferred from one accountable officer
to another, or from an outgoing officer to his successor, it shall be done upon
properly itemized invoice and receipt which shall invariably support the
clearance to be issued to the relieved or out-going officer, subject to regulations
of the Commission.
Section 78
Disposition of Funds or Property Held by Deceased, Incapacitated, Absconding,
or Superseded Accountable Officer. —
1. When an officer, accountable for government funds or property absconds
with them dies, or becomes incapacitated in the performance of his duties,
the proper agency head shall designate a custodian to take charge of the
funds or property until a successor shall have been appointed and
qualified. The agency head may appoint a committee to count the cash and
take an inventory of the property for which the officer was accountable and
to determine the responsibility for any shortage therein. One copy of the
inventory and of the report of the Committee duly certified shall be filed
with the Commission but the findings of the committee shall not be
conclusive until approved by the Commission or its duly authorized
representative.
2. If the absconding, deceased, incapacitated, or superseded officer is
accountable for funds or property of a province or city, the custodian and
committee shall be designated by the Minister (Secretary) of Finance, and
if accountable for municipal or barrio (barangay) funds or property, by the

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 provincial treasurer. In all other respects, the above-prescribed
proceedings shall be observed.
3. If the absconding, deceased, incapacitated, or superseded officer is
responsible to another who is accountable, the latter may himself
designate the committee or take other lawful measures for the protection
of his interest.
Section 79
Destruction or Sale of Unserviceable Property. —
When government property has become unserviceable for any cause, or is no
longer needed, it shall, upon application of the officer accountable therefor, be
inspected by the head of the agency or his duly authorized representative in the
presence of the auditor concerned and, if found to be valueless or unsalable, it
may be destroyed in their presence. If found to be valuable, it may be sold at
public auction to the highest bidder under the supervision of the proper
committee an award or similar body in the presence of the auditor concerned or
other duly authorized representative of the Commission, after advertising by
printed notice in the Official Gazette, or for not less than three consecutive days
in any newspaper of general circulation, or where the value of the property does
not warrant the expense of publication, by notices posted for a like period in at
least three public places in the locality where the property is to be sold. In the
event that the public auction fails, the property may be sold at a private sale at
such price as may be fixed by the same committee or body concerned and
approved by the Commission.
Section 80
Final Report of Accountable Officers. —
1. An accountable officer, upon ceasing to act in his official capacity as such,
shall submit to the auditor of the agency concerned a report of his
accountability.
2. Any remaining balance of such accountability shall be deposited in the
proper treasury without unnecessary delay.
Section 81
Auditor's Certificate of Balance. —
Auditors of all government agencies, shall certify the balances arising in the
accounts settled by them to the Commission and to the proper treasurer,
collecting officer, or disbursing officer, in such form as the Commission may
prescribe, within sixty days from the date of receipt of those accounts from the
treasurer, collecting officer, or disbursing officer concerned.

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Section 82
Auditor's Notice to Accountable Officer of Balance Shown upon Settlement. —
The auditor concerned shall, at convenient intervals, send a written notice under
a certificate of settlement to each officer whose accounts have been audited and
settled in whole or in part by him, stating the balances found due thereon and
certified, and the charges or differences arising from the settlement by reason of
disallowances, charges, or suspensions. The certificate shall be properly itemized
and shall state the reasons for disallowance, charge, or suspension of credit. A
charge of suspension which is not satisfactorily explained within ninety days
after receipt of the certificate or notice by the accountable officer concerned shall
become a disallowance, unless the Commission or auditor concerned shall, in
writing and for good cause shown, extend the time for answer beyond ninety
days.
Section 83
Transcript of Auditor's Record as Evidence of Liability. —
In any criminal or civil proceeding against an officer for the embezzlement or
misappropriation of government funds or property, or to recover an amount due
the government from an accountable officer it shall be sufficient, for the purpose
of showing a balance against him, to produce the working papers of the auditor
concerned. A showing in this manner of any balance against the officer shall be
prima facie evidence of the misappropriation of the funds or property
unaccounted for or of civil liability of the officer as the case may be. The existence
or contents of bonds, contracts, or other papers relating to or connected with the
settlement of any account may be proved by the production of certified copies
thereof but the court may require the production of the original when this
appears to be necessary for the attainment of justice.
Chapter 4
Application of Appropriated Funds
Section 84
Disbursement of Government Funds. —
1. Revenue funds shall not be paid out of any public treasury or depository
except in pursuance of an appropriation law or other specific statutory
authority.
2. Trust funds shall not be paid out of any public treasury or depository
except in fulfillment of the purpose for which the trust was created or
funds received, and upon authorization of the legislative body, or head of
any other agency of the government having control thereof, and subject to
pertinent budget law, rules and regulations.
3. National revenue and trust funds shall not be withdrawn from the National
Treasury except upon warrant or other instruments of withdrawal

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 approved by the Minister (Secretary) of Finance as recommended by the
Treasurer of the Philippines.
4. Temporary investment of investible cash in the National Treasury in any
securities issued by the National Government and its political subdivisions
and instrumentalities including government-owned or controlled
corporations as authorized by the Secretary (Minister) of Finance, shall not
be construed as disbursements of funds.

Section 85
Appropriation Before Entering into Contract. —
1. No contract involving the expenditure of public funds shall be entered into
unless there is an appropriation therefor, the unexpended balance of
which, free of other obligations, is sufficient to cover the proposed
expenditure.
2. Notwithstanding this provision, contracts for the procurement of supplies
and materials to be carried in stock may be entered into under regulations
of the Commission provided that when issued, the supplies and materials
shall be charged to the proper appropriation account.

Section 86
Certificate Showing Appropriation to Meet Contract. —
Except in the case of a contract for personal service, for supplies for current
consumption or to be carried in stock not exceeding the estimated consumption
for three months, or banking transactions of government-owned or controlled
banks no contract involving the expenditure of public funds by any government
agency shall be entered into or authorized unless the proper accounting official
of the agency concerned shall have certified to the officer entering into the
obligation that funds have been duly appropriated for the purpose and that the
amount necessary to cover the proposed contract for the current fiscal year is
available for expenditure on account thereof, subject to verification by the
auditor concerned. The certificate signed by the proper accounting official and
the auditor who verified it, shall be attached to and become an integral part of
the proposed contract, and the sum so certified shall not thereafter be available
for expenditure for any other purpose until the obligation of the government
agency concerned under the contract is fully extinguished.

Section 87
Void Contract and Liability of Officer. —

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Any contract entered into contrary to the requirements of the two immediately
preceding sections shall be void, and the officer or officers entering into the
contract shall be liable to the government or other contracting party for any
consequent damage to the same extent as if the transaction had been wholly
between private parties.

Section 88
Prohibition Against Advance Payment on Government Contracts. —
1. Except with the prior approval of the President (Prime Minister) the
government shall not be obliged to make an advance payment for services
not yet rendered or for supplies and materials not yet delivered under any
contract therefor. No payment, partial or final, shall be made on any such
contract except upon a certification by the head of the agency concerned
to the effect that the services or supplies and materials have been rendered
or delivered in accordance with the terms of the contract and have been
duly inspected and accepted.
2. Notwithstanding the foregoing paragraph, any government agency, with
the approval of the proper department head, may furnish supplies and
materials to any party who has a contract with that agency if the supplies
and materials are needed in the performance of the services being
contracted for and the value thereof does not exceed in any one month ten
percent of the value of the services already rendered due and unsettled as
computed by the agency concerned.
Section 89
Limitations on Cash Advance. —
No cash advance shall be given unless for a legally authorized specific purpose.
A cash advance shall be reported on and liquidated as soon as the purpose for
which it was given has been served. No additional cash advance shall be allowed
to any official or employee unless the previous cash advance given to him is first
settled or a proper accounting thereof is made.
Section 90
Payment of Rewards. —
When a reward becomes payable by authority of law for information given relative
to any offense or for any act done in connection with the apprehension of the
offender, the reward shall, in the absence of special provisions, be paid in such
manner as shall be prescribed by executive order. The final determination by the
proper administrative authority pursuant to law or any such order, as to whether
or not the persons concerned are entitled to any reward and the amount thereof,
shall be conclusive upon the executive agencies concerned as regards the liability
of the government.

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Section 91
Payments to Creditors. —
Payments to creditors shall be made only upon the specific approval of the head
of the agency concerned or his duly authorized representative, or if there be no
such officer, upon the approval of the department head endorsed upon the
warrant or check or voucher effecting the payment.
Section 92
Persons Authorized to Draw Warrants or Checks for Payment Out of Government
Funds. —
1. Warrants upon the National Treasury or checks drawn against duly
authorized bank accounts shall be drawn by the agency head having
control of the appropriation or fund against which the warrants or checks
are chargeable, or by such subordinate officer as shall be designated for
that duty by the said agency head, who shall all be duly deputized for the
purpose by the Treasurer of the Philippines. Copies of the designation shall
be furnished the Treasurer of the Philippines and the representative of the
Commission. Notice shall likewise be given to the Treasurer of the
Philippines and the Commission when the designation is revoked. No
member of the accounting unit or the internal control unit of the agency
may be designated to perform the duty.
2. Warrants chargeable to national appropriations or funds not under the
control of an agency shall be drawn by such officer as shall be specified by
law, or, in the absence of that officer, by an officer designated by the
President (Prime Minister).
Section 93
To Whom Warrants or Checks Payable. —
Warrants chargeable to revenue or trust funds of the national government or
checks drawn against the Treasury Checking Account for Agencies maintained
with any government depository shall be made payable either directly to the
creditor to whom the money is due or to a disbursing officer for official
disbursement.
Section 94
Countersigning of Warrants or Checks by Auditors. —
No warrant or check shall be paid by the Treasurer of the Philippines, local
treasurer, or any government depository unless it is countersigned by a duly
authorized official of the Commission. When, in the opinion of the Commission,
the interest of the service so requires the warrant or check may be paid without
the countersignature under such rules and regulations as it may prescribe from
time to time.

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Section 95
Treasurer's Responsibility for Indorsements. —
The Treasurer of the Philippines shall, within three years from the date of
payment by him, be responsible for the indorsements on all warrants and checks
and shall retain them in his custody, after which they shall be disposed of under
pertinent regulations: Provided, that they are not needed for pending civil,
criminal or administrative proceedings.
Section 96
Payment of Lost or Fraudulently Encashed Treasury Warrants or Checks. —
When any check or warrant is lost, stolen or destroyed, the issuing officer may
issue a duplicate check or warrant which shall be paid under regulations of the
Commission in regard to issuance and payment and upon the execution of a
bond to indemnify the issuing agency in such amount and with such security as
the Commission may require.
Treasury Warrant or check encashed under forged or fraudulent indorsement
shall be replaced by the Treasurer of the Philippines even before the recovery of
the equivalent amount under rules and regulations that the Commission and the
Department (Ministry) of Finance shall prescribe.
The Clearing or Payment of Treasury warrant and check paid by bank or other
holder in due course and subsequently lost may be allowed under regulations of
the Commission and the Department (Ministry) of Finance.
Section 97
Disposition of Stale Warrants or Checks. —
1. A Treasury warrant or check which remains outstanding after two years
from date of its issue shall not be paid by the Treasurer of the Philippines
or by any duly authorized depository. The issuing agency shall take up in
its books of accounts the amount of this warrant or check as surplus
adjustment of the fund against which it was previously charged. Upon
presentation of a stale warrant or check, the issuing agency shall cancel it
and issue to the payee a substitute warrant or check in lieu thereof.
2. Such sum as may be necessary to meet the obligation arising out of the
issuance of substitute warrants or checks chargeable against the general
fund shall be charged to the current year's General Appropriations law,
subject to pertinent budget rules and regulations. Substitute warrants or
checks payable from funds other than the general fund shall be paid from
the appropriate funds.

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Section 98
Reversion of Unliquidated Balances of Accounts Payable. —
The Commission upon notice to the head of agency concerned, may revert to the
unappropriated surplus of the general fund of the national government, any
unliquidated balance of accounts payable in the books of the national
government, which has been outstanding for two years or more and against
which no actual claim, administrative or judicial, has been filed or which is not
covered by perfected contracts on record. This section shall not apply to
unliquidated balances of accounts payable in trust funds as long as the purposes
for which the funds were created have not been accomplished.
Section 99
Transfer of Unexpended Balances to the General Fund. —
The Commission may transfer at any time, from moneys appropriated for a
specific purpose, to the unappropriated general fund any surplus balance
standing to the credit of any appropriation or fund when the officer having
administrative control thereof certifies to the Commission that there is a surplus
in excess of the requirements, or that the work or purpose for which the
appropriation was made has been completed, indefinitely postponed or
abandoned, and that there is no outstanding obligation to be paid therefrom.
Section 100
Reports of Disbursing Officers in a Government Agency. —
Disbursing officers in any government agency shall render monthly reports of
their transactions pursuant to regulations of the Commission to be submitted
not later than the fifth day of the ensuing month to the auditor concerned who
shall conduct the necessary examination and audit within thirty days from
receipt thereof.
Chapter 5
Accountability and Responsibility for Government Funds and Property
Section 101
Accountable Officers; Bond Requirement. —
1. Every officer of any government agency whose duties permit or require the
possession or custody of government funds or property shall be
accountable therefor and for the safekeeping thereof in conformity with
law.
2. Every accountable officer shall be properly bonded in accordance with law.

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Section 102
Primary and Secondary Responsibility. —
1. The head of any agency of the government is immediately and primarily
responsible for all government funds and property pertaining to his
agency.
2. Persons entrusted with the possession or custody of the funds or property
under the agency head shall be immediately responsible to him, without
prejudice to the liability of either party to the government.

Section 103
General Liability for Unlawful Expenditures. —
Expenditures of government funds or uses of government property in violation
of law or regulations shall be a personal liability of the official or employee found
to be directly responsible therefor.

Section 104
Records and Reports Required by Primarily Responsible Officers. —
The head of any agency or instrumentality of the national government or any
government-owned or controlled corporation and any other self-governing board
or commission of the government shall exercise the diligence of a good father of
a family in supervising accountable officers under his control to prevent the
incurrence of loss of government funds or property, otherwise he shall be jointly
and solidarily liable with the person primarily accountable therefore. The
treasurer of the local government unit shall likewise exercise the same degree of
supervision over accountable officers under his supervision otherwise, he shall
be jointly and solidarily liable with them for the loss of government funds or
property under their control.
Section 105
Measure of Liability of Accountable Officers. —
1. Every officer accountable for government property shall be liable for its
money value in case of improper or unauthorized use or misapplication
thereof, by himself or any person for whose acts he may be responsible.
He shall likewise be liable for all losses, damages, or deterioration
occasioned by negligence in the keeping or use of the property, whether or
not it be at the time in his actual custody.
2. Every officer accountable for government funds shall be liable for all losses
resulting from the unlawful deposit, use, or application thereof and for all
losses attributable to negligence in the keeping of the funds.

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Section 106
Liability for Acts Done by Direction of Superior Officer. —
No accountable officer shall be relieved from liability by reason of his having
acted under the direction of a superior officer in paying out, applying, or
disposing of the funds or property with which he is chargeable, unless prior to
that act, he notified the superior officer in writing of the illegality of the payment,
application, or disposition. The officer directing any illegal payment or
disposition of the funds or property shall be primarily liable for the loss, while
the accountable officer who fails to serve the required notice shall be secondarily
liable.
Section 107
Time and Mode of Rendering Account. —
In the absence of specific provision of law, all accountable officers shall render
their accounts, submit their vouchers, and make deposits of money collected or
held by them at such times and in such manner as shall be prescribed in the
regulations of the Commission.
Section 108
Prohibition Against Pecuniary Interest. —
No accountable or responsible officer shall be pecuniary interested, directly or
indirectly, in any contract or transaction of the agency in which he is such an
officer.

Title III
Government Accounting
Chapter 1
Basic Principles and Objectives
Section 109
Definition. —
Government accounting encompasses the processes of analyzing, recording,
classifying, summarizing and communicating all transactions involving the
receipt and disposition of government funds and property, and interpreting the
results thereof.
Section 110
Objectives of Government Accounting. —
Government accounting shall aim to
1. produce information concerning past operations and present conditions;
2. provide a basis for guidance for future operations;
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 3. provide for control of the acts of public bodies and officers in the receipt,
disposition and utilization of funds and property; and
4. report on the financial position and the results of operations of government
agencies for the information of all persons concerned.

Chapter 2
Accounts and Accounting
Section 111
Keeping of Accounts. —
1. The accounts of an agency shall be kept in such detail as is necessary to
meet the needs of the agency and at the same time be adequate to furnish
the information needed by fiscal or control agencies of the government.
2. The highest standards of honesty, objectivity and consistency shall be
observed in the keeping of accounts to safeguard against inaccurate or
misleading information.
Section 112
Recording of Financial Transactions. —
Each government agency shall record its financial transactions and operations
conformably with generally accepted accounting principles and in accordance
with pertinent laws and regulations.
Section 113
Chart of Accounts. —
The chart of accounts for government agencies shall be prescribed by the
Commission and shall be so designed as to permit agency heads to review their
activities according to selected areas of responsibility; allow for a clearer
definition of obligation accounting leading to more precise budgetary control;
provide for a wider range of analytical information designed for use in
management audit or legislative review; furnish information regarding the
production of income and the investment in capital items which is of value in
fiscal and economic planning; enable tighter accounting control to be exercised
over agencies' financial relationship with the Treasury; permit a more simplified
preparation of trial balances and a simpler and more orderly process of national
consolidation and facilitate the application of mechanized accounting procedures
for more effective protection against error and irregularity and yielding
economies in operation.
Section 114
The General Ledger. —

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 1. The government accounting system shall be on a double entry basis with
a general ledger in which all financial transactions are recorded.
2. Subsidiary records shall be kept where necessary.
Section 115
Terminology and Classification. —
A common terminology and classification shall be used consistently throughout
the budget, the accounts and the financial reports.
Section 116
Accounts Classification. —
To permit effective budgetary control and to establish uniformity in financial
reports, accounts shall be classified in balanced fund groups. The group for each
fund shall include all accounts necessary to set forth its operations and
condition. All financial statements shall follow this classification.
Section 117
Budgetary Control Accounts. —
The general accounting system shall include budgetary control accounts for
revenues, expenditures and debt, as provided by P.D. No. 1177.
Section 118
Accounting for Unrealized Revenues. —
Estimated revenues which remain unrealized at the close of the fiscal year shall
not be booked or credited to the unappropriated surplus or any other account.
Section 119
Accounting for Obligations and Expenditures. —
All lawful expenditures and obligations incurred during the year shall be taken
up in the accounts of that year.

Chapter 3
Accounting Reports
Section 120
Reporting Requirements. —
The Commission shall issue the pertinent accounting rules and regulations
whenever the reporting requirements to be prescribed by the Budget Commission
pursuant to the budget law affect accounting functions of the various agencies
of the government.

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Section 121
Financial Reports and Statements. —
1. The financial reports prepared by the agencies shall comply with the
specific requirements of applicable laws and regulations as to nature,
accounting basis, content, frequency, and distribution as well as with all
applicable restrictions pertaining to information that is classified for
national security purposes.
2. The financial statements shall be based on official accounting records kept
in accordance with law and the generally accepted accounting principles
and standards.
Section 122
Submission of Reports. —
Whenever deemed necessary in the exigencies of the service, the Commission
may under regulations issued by it require the agency heads, chief accountants,
budget officers, cashiers, disbursing officers, administrative or personnel
officers, and other responsible officials of the various agencies to submit trial
balances, physical inventory reports, current plantilla of personnel, and such
other reports as may be necessary for the exercise of its functions.
1. Failure on the part of the officials concerned to submit the documents and
reports mentioned herein shall automatically cause the suspension of
payment of their salaries until they shall have complied with the
requirements of the Commission.
2. No appropriation authorized in the General Appropriations Act shall be
available to pay the salary or any official or employee who violates the
provisions of this section, without prejudice to any disciplinary action that
may be instituted against such official or employee.
Chapter 4
Internal Control Systems
Section 123
Definition of Internal Control. —
Internal control is the plan of organization and all the coordinate methods and
measures adopted within an organization or agency to safeguard its assets,
check the accuracy any reliability of its accounting data, and encourage
adherence to prescribed managerial policies.
Section 124
Installation. —
It shall be the direct responsibility of the agency head to install, implement, and
monitor a sound system of internal control.

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 Title IV
Final Provisions
Section 125
Transitory Provisions. —
1. Until such time as the Commission shall have been fully constituted, the
incumbent Chairman or his successor shall continue to exercise all the
powers and functions properly appertaining to the Commission.
2. Pending implementation of the provisions of Section 24, paragraph 2 of
this Code, the agencies concerned shall continue to provide the necessary
amounts for the salaries, allowances and other benefits for the
representative and staff of the Commission.
Section 126
Duty to Respect the Commission's Independence. —
It shall be the duty of every person to respect, protect and preserve the
independence of the Commission.

Section 127
Administrative Disciplinary Action. —
Subject to rules and regulations as may be approved by the President (Prime
Minister), any unjustified failure by the public officer concerned to comply with
any requirement imposed in this Code shall constitute neglect of duty and shall
be a ground for administrative disciplinary action against the said public officer
who, upon being found guilty thereof after hearing, shall be meted out such
penalty as is commensurate with the degree of his guilt in accordance with the
Civil Service Law. Repeated unjustified failure to comply with the requirements
imposed in this Code shall be conclusive proof that the public officer concerned
is notoriously undesirable.
Section 128
Penal Provision. —
Any violation of the provisions of Sections 67, 68, 89, 106, and 108 of this Code
or any regulation issued by the Commission implementing these sections, shall
be punished by a fine not exceeding one thousand pesos or by imprisonment not
exceeding six (6) months, or both such fine and imprisonment in the discretion
of the court.
Section 129
Separability Clause. —

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Should any provision of this Code or any part thereof be declared invalid, the
other provisions, so far as they are separable from the invalid one, shall remain
in force and effect.
Section 130
Repealing Clause. —
Chapter 26 (Accounting Law) of Act 2711 is hereby repealed. All other laws,
executive orders, proclamations, decrees, instructions, rules and regulations, or
parts thereof which are inconsistent or in conflict with any provision of this Code
shall be deemed repealed or modified accordingly.
Section 131
Effectivity Clause. —
This Code shall take effect three months after the completion of its publication
in the Official Gazette.

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